ECN 104 Study Guide - Final Guide: Deadweight Loss, Economic Surplus, Market Distortion

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Chapter 8 : application: the costs of taxation. Which curve shifts depends on whether the tax is levied on sellers (the supply curve shifts) or buyers(the demand curve shifts). A tax on a good, no matter what, causes the size of the market for the good to shrink. The benefit received by buyers in a market is measured by consumer surplus the amount buyers are willing to pay for the good minus the amount they actually pay for it. The benefit received by sellers in a market is measured by producer surplus the amount sellers receive for the good minus their costs to produce, and sell the good. To analyze how taxes affect economic well-being , we use tax revenue to measure the government"s benefit from the tax. However, this benefit actually accrues not to government but to those on whom the revenue is spent.

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