ECO 1102 Chapter Notes - Chapter 8: Deadweight Loss, Economic Surplus, Opportunity Cost

• School: University of Ottawa
• Department: Economics
• Course: ECO 1102
• Professor: David Gray

Document Summary

*midterm re-evaluation (go to website, compare your answer to the solutions sheet for improving your grade) Suppose that a per unit excise tax is imposed on sellers. S shifts upward and to the left by the full amount of the tax, called t. Note that tax revenue = t * new q. Next step is to determine who wins and who loses, and by how much. Before the tax, ts = cs + ps. In figure 8-3, cs = areas a + b + c. In figure 8-3, ps = areas d + e + f (see table 8-1: changes in welfare from a tax, see figure 8-3: how a tax affects welfare) After the tax, ts = cs + ps + tax revenue. In figure 8-3, cs = a (they lose) In figure 8-3, ps = f (they lose) In figure 8-3, tax revenue = b + d (government wins)