Chapter8+JDEM





====//The response to the word 'tax' is almost universal: DUN DUN DUNNNNNNN. TAXES= OH NOEZZZ!!!. This chapter will focus on explaining why taxes are considered to be negative. On the flip side, it will also explain the purpose of having taxes (yes, there really is a purpose, besides aggravating you) and what the various effects of a tax are.//====

=__Key Ideas__= Negative aspects of Taxes Taxing a good brings down the total surplus. This brings forth the idea of dead weight loss.

Dead Weight Loss The market no longer maximizes total surplus by shrinking the market.

What are the effects of a Tax?

If something is taxed, the price a buyer needs to pay is greater than amount the seller gets in return since that extra money went to the government. So, a tax wedge forms.



__Take a look at this chart to see the changes in Surplus due to taxation.__
= → =

= The areas C+E represent DEAD WEIGHT LOSS. =

What is Dead Weight Loss?

===An inevitable concept and truth of the society, there will always be dead weight losses. This happens because the amount of output decreases. If there hadn’t been a tax, both producers and consumers would buy and sell much more. But because they no longer benefit as much, they refuse to participate in the market; causing the market to ultimately shrink.===

Dead weight loss is dependent on the elasticities of demand and supply. Lets take a look at two main scenarios that increase the amount of Dead Weight Loss.

When there is a stable demand curve and the supply is elastic, DWL is larger.

When there is a stable supply curve and the demand is elastic, DWL is larger.

__** Taxes increase → DWL increases **__
__**Conclusion**__ ==== //Hopefully this chapter has answered all your questions about taxes- why they are necessary, why they exist in the first place, why they can be positive (in some cases), why they are negative (in most cases). Taxes are a way through which the government attempts to deal with the differences between supply and demand- another facet of the decision making process that revolves around scarcity.// ====

= =  **1. When a tax is levied on a good** a. the quantity of the good sold will change. b. the price of the good sold will change. c. both price and quantity of the good sold will change. d. neither price nor quantity of the good sold will change.

a. raises the price buyers pay and lowers the price sellers receive. b. raises both the price buyers pay and the price sellers receive. c. lowers both the price buyers pay and the price sellers receive. d. lowers the price buyers pay and raises the price sellers receive.
 * 2. A tax on a good**

a. sellers always bear the full burden of the tax. b. buyers always bear the full burden of the tax. c. buyers and sellers will share the burden of the tax. d. sellers bear the full burden if the tax is levied on them, and buyers bear the full burden if the tax is levied on them.
 * 3. Whether a tax is levied on the buyer or seller of the good does not matter because**

a. deadweight loss. b. tax revenue. c. equilibrium price. d. total surplus.
 * 4. What do governments receive from taxing?**

a. a deficit. b. economic loss. c. deadweight loss. d. inefficiency.
 * 5. The loss in total surplus and also reason of inefficiency is called...**

=Glossary=

Dead Weight Loss: The fall in total surplus that results from distortion in the market. (Great example would be tax)