BUSAD 120 Chapter Notes - Chapter 6: Economic Surplus, Market Failure, Externality
Document Summary
Causes the buyers" price to rise and sellers" price to fall. Causes the quantity sold and bought to fall. Allows the government to collect revenues to fund goods and services for its citizens. We must take into account how the tax affects the welfare of all market participants: Loss in consumer and producer surplus from the tax: B + c + d + e. The tax allows the government to collect revenues. We use tax revenue to measure the government"s benefit from a tax. T = the size of the per unit tax. Q2 = the quantity of the good sold. Government"s tax revenue equals t x q2 : Government"s tax revenue is less than the loss in cs and ps. The area c+e is called deadweight losses. It is the reduction in total surplus that results when a tax is introduced. Taxes cause deadweight losses because some potential gains from trade are lost to buyers and sellers.
