Chapter Eight

Total surplus with a tax is equal to

consumer surplus plus producer surplus minus tax revenue

The decrease in total surplus that results from a market distortion, such as a tac, is called a

deadweight loss

Consider a good to which a per-unit tax applies. the greater the price elasticities of demand and supply for the good, the

greater the deadweight loss from the tax

A tax levied on the sellers of a good shifts the

supply curve upwards (or to the left)

Taxes cause deadweight losses because they

1.) lead to losses in surplus for consumers and for producers that, when taken together, exceed tac revenue collected by the government 2.) distort incentives to both buyers and sellers 3.) prevent buyers and sellers from realizing some for the gains from trade

What happens to the total surplus in a market when the government imposes a tax?

Total surplus decreses

When a tax is levied on buyers of a good,

a wedge is placed between the price buyers pay and the price sellers recieve

The price elasticities of supply and demand affect

bother the size of the deadweight loss from a tac and the tax incidence

The government's benefits from a tax can be measured by

tax revenue

A tax levied on the buyers of a good shifts the

demand curve downward (or to the left)

When a tax is imposed on a good, the

equilibrium quantity of the good always decreases

When the government places a tax on a product, the cost of the tax to buyers and sellers

exceeds the revenue raised from the tax by the government

Suppose the government increases the size of a tax by 20 percent. The deadweight loss from that tax

increases by more than 20 percent

The deadweight loss from a tax

is larger, the larger is the amount of the tax per unit

When a tax is levied on a good, the buyers and sellers of the good share the burden,

regardless of how the tax is levied

The amount of deadweight loss that results from a tax of a given size is determined by

the price elasticities of demand and supply