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ECN 104 (388)
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Chapter 8

# Chapter 8

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Department
Economics
Course Code
ECN 104
Professor
Eric Kam

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Chapter 8
THE EFFECTS OF A TAX
The tax generates revenue equal to : tax * quantity after tax
This tax is included in the total surplus
Deadweight loss : the fall in total surplus that results from the tax (or a market
distortion)
oThe units between Qt and Qe are not sold because of tax
Elasticity of DWL on Supply and demand
oInelastic Supply OR Demand = Smaller DWL
oElastic Supply OR Demand = Larger DWL
With the tax
CS = A
PS = F
Tax revenue = B + D
Total surplus = A + B + D
+ F
Deadweight loss = C + F
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Description
Chapter 8 THE EFFECTS OF A TAX • The tax generates revenue equal to : tax * quantity after tax • This tax is included in the total surplus With the tax CS = A PS = F Tax revenue = B + D Total surplus = A + B + D
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