Application the Costs of taxation C Chapter 8
Application: the Costs of Taxation Chapter 8
The Cost of taxation e how do taxes affect the economic well eing of market participants? b o 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 Cost of Taxation • How do taxes affect the economic wellbeing of market participants? • 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 Suppl Price buyers Size of tax pay Price without tax Price sellers eive D eman d 0 Quantity Quantity without Quantity with tax tax
The Effects of a Tax... Price 0 Quantity without Quantity 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
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 TxQ=the government's tax revenue
Tax Revenue T = the size of the tax Q = the quantity of the good sold TQ = the government’s tax revenue