The Principles of Economics
The Principles of Economics
8 Application: The Costs of Taxation
8-1 The Deadweight Loss of Taxation
8-1a How a Tax Affects Market Participants
-Buyers and sellers are hurt by the taxing of goods because the costs to them are exceeded by the revenue raised by the government.
-Whether a tax is levied on buyers and sellers or not, the impact of a tax on a market outcome remains the same.
-Taxes on goods result in markets that include those goods to shrink.
-Tax revenue tells how much the public benefits from the tax.
-Welfare without a tax - total surplus is the area between supply and demand up to an equilibrium.
-Welfare with a tax - total surplus is consumer surplus + producer surplus + tax revenue .
-deadweight loss: the fall in total surplus that results from a market distortion, such as the tax.
8-1b Deadweight Losses and the Gains from Trade
-Taxes typically cause deadweight losses, refraining buyers and sellers from realizing the gains of trading.
8-2 The Determinants of the Deadweight Loss
-More deadweight losses results in greater elasticity because people react more to changes in prices.
-The gains from trade are less than taxes.
-The underground economy is when people engage in illegal economic activity, such as drug trades.
8-3 Deadweight Loss and Tax Revenue as Taxes Vary
-As taxes rise, so does the deadweight loss.
-When attempting to reduce high taxes, the tax revenue would actually increase. When taxes are cut, people are encouraged to increase their quantity of labor.
-Greater elasticity calls for more of an increase in tax revenue.
8-4 Conclusion
-Microeconomics: how to design a successful tax system while balancing equality and efficiency.
-Macroeconomics: how taxes influence the economy and how policymakers use the system to stabilize the economy.
The Principles of Economics
The Principles of Economics
8 Application: The Costs of Taxation
8-1 The Deadweight Loss of Taxation
8-1a How a Tax Affects Market Participants
-Buyers and sellers are hurt by the taxing of goods because the costs to them are exceeded by the revenue raised by the government.
-Whether a tax is levied on buyers and sellers or not, the impact of a tax on a market outcome remains the same.
-Taxes on goods result in markets that include those goods to shrink.
-Tax revenue tells how much the public benefits from the tax.
-Welfare without a tax - total surplus is the area between supply and demand up to an equilibrium.
-Welfare with a tax - total surplus is consumer surplus + producer surplus + tax revenue .
-deadweight loss: the fall in total surplus that results from a market distortion, such as the tax.
8-1b Deadweight Losses and the Gains from Trade
-Taxes typically cause deadweight losses, refraining buyers and sellers from realizing the gains of trading.
8-2 The Determinants of the Deadweight Loss
-More deadweight losses results in greater elasticity because people react more to changes in prices.
-The gains from trade are less than taxes.
-The underground economy is when people engage in illegal economic activity, such as drug trades.
8-3 Deadweight Loss and Tax Revenue as Taxes Vary
-As taxes rise, so does the deadweight loss.
-When attempting to reduce high taxes, the tax revenue would actually increase. When taxes are cut, people are encouraged to increase their quantity of labor.
-Greater elasticity calls for more of an increase in tax revenue.
8-4 Conclusion
-Microeconomics: how to design a successful tax system while balancing equality and efficiency.
-Macroeconomics: how taxes influence the economy and how policymakers use the system to stabilize the economy.