Micro 8-1
Suppose the government imposes a tax that reduces the quantity sold in the market after the tax to Q2. The price that buyers pay is
P2
The deadweight loss of the tax is represented by the
area of the triangle bounded by the points A, B, and C.
It does not matter whether a tax is levied on the buyers or the sellers of a good because
buyers and sellers will share the burden of the tax
A tax placed on a good
causes the equilibrium quantity of the good to decrease
Suppose the government imposes a tax of P' - P'''. The area measured by K+L represents
tax revenue.
A tax levied on the buyers of a good shifts the
demand curve downward (or to the left).
A deadweight loss is a consequence of a tax on a good because the tax
induces buyers to consume less, and sellers to produce less.
The size of the tax is represented by the
length of the line segment connecting points A and B.
If a tax shifts the supply curve upward (or to the left), we can infer that the tax was levied on
sellers of the good.
A tax levied on the sellers of a good shifts the
supply curve upward (or to the left).