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).