Chap08 Application The Costs of Taxation.ppt

文档介绍：Application:The Costs of Taxation
Chapter 8
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The Costs of Taxation
How do taxes affect the economic well-being of market participants?
The Costs of Taxation
It does not matter whether a tax on a good is levied on buyers or sellers of the good…the price paid by buyers rises, and the price received by sellers falls.
The Effects of a Tax...
Price
0
Quantity
Quantity without tax
Supply
Demand
Price without tax
Price buyers pay
Quantity with tax
Size of tax
Price sellers receive
The Effects of a Tax
A tax places a wedge between the price buyers pay and the price sellers receive.
Because of this tax wedge, the quantity sold falls below the level that would be sold without a tax.
The size of the market for that good shrinks.
Tax Revenue
T = the size of the tax
Q = the quantity of the good sold
TQ = the government’s tax revenue
Tax Revenue...
Price
0
Quantity
Quantity without tax
Supply
Demand
Price sellers receive
Quantity with tax
Size of tax (T)
Quantity sold (Q)
Tax Revenue (T x Q)
Price buyers pay
How a Tax Affects Welfare...
Quantity
0
Price
Demand
Supply
Q1
A
B
C
F
D
E
Q2
Tax reduces consumer surplus by (B+C) and producer surplus by (D+E)
Tax revenue = (B+D)
Deadweight Loss = (C+E)
Price
buyers
pay
=
PB
P1
Price without tax
=
PS
Price sellers receive
=
Changes in Welfare from a Tax
Without Tax
With Tax
Change
Consumer Surplus
A + B + C
A
- (B + C)
Producer Surplus
D + E + F
F
- (D + E)
Tax Revenue
none
B + D
+ (B + D)
Total Surplus
A + B + C + D + E + F
A + B + D + F
- (C + E )
The area C+E shows the fall in total surplus and is the deadweight loss of the tax.
How a Tax Affects Welfare
The change in total welfare includes:
The change i