Oc98 ECON101 0 The introduction of any price floor unambiguously decreases the total surplus in the economy. The amount by which total surplus drops after the government imposes a price floor represents the deadweight loss in the economy. TAXATION Definition: Tax generates tax revenues that can be used to redistribute wealth within a society. Governments set tax to improve the distribution of income and opportunities across different population groups. Assumption: tax is levied on producer; same result applies if tax is levied on consumers. Consider a perunit tax imposed on each of the goods sold in the market. From the perspective of a supplier, the effect of this tax is similar to an increase in the production cost for each unit by exactly the amount of the tax marginal cost increases by exactly the tax amount.