AECN 141 Lecture Notes - Lecture 5: Tax Incidence, Transfer Payment, Deadweight Loss
Document Summary
What are the implications of government intervention in the economy: taxes, subsidies, other. The burden of the tax depends on demand and supply curves. Tax incidence: how the burden of a tax is distributed across various agents in the economy: the incidence of the tax usually affects both consumers and producers. Deadweight loss: the loss in social surplus that results from market distortion. A tax on producers: pd: price consumers pay, ps: price producers receive (excluding tax, t: tax. In equilibrium: pd = ps + t pd = ps + 0. 2, substitute pd or ps into demand/supply equation, ps = pd 0. 2 = 0. 2 _ 0. 00003qs , pd = 0. 4 + 0. 00003qs. No tax: q* = 48,000, p* = . 64. Surplus measures: cs = ,640, ps = ,560, government rev. Tax: qtax = 46,000, ptax = . 78. Surplus measures: cs = ,060, ps = ,740, govt. = sh. 2 x 46,000 = ,200: deadweight loss = .
