chp 8

taxes cause deadweight losses because taxes

-reduce the sum of producer and consumer surpluses by more than the amount of tax revenue -prevent buyers and sellers from realizing some of the gains from trade -cause marginal buyers and marginal sellers to leave the market, causing the quantity sold to fall

the per unit burden of the tax on sellers is

2

the amount of dead weight loss as a result of the tax is

2.50

the loss of producer surplus as a result of the tax is

3

the per unit burden of the tax on buyers is

3

the loss of consumer surplus as a result of the tax is

4.50

the amount of tax revenue received by the government is

5

the amount of the tax on each unit of the good is

5

consumer surplus without the tax is

6 and consumer surplus with the tax is 1.50

the decrease in total surplus that results from a market distortion, such asa tax, is called

deadweight loss

the imposition of the tax causes the quantity sold to

decrease by 1 unit

the imposition of the tax causes the price received by sellers to

decrease by 2

a tax levied on the buyers of a good shifts the

demand curve downward (or to the left)

a tax on a good:

gives sellers an incentive to produce less of the good than they otherwise would produce.

deadweight loss measures the loss

in a market to buyers and sellers that is not offset by an increase in government revenue

the imposition of the tax causes the price paid by buyers to

increase by 3

a tax on a good

raises the price that buyers effectively pay and lowers the price that sellers effectively recieve

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 laffer curve relates

the tax rate to tax revenue raised by the tax

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

total surplus decreases