Loading presentation...

Present Remotely

Send the link below via email or IM

Copy

Present to your audience

Start remote presentation

  • Invited audience members will follow you as you navigate and present
  • People invited to a presentation do not need a Prezi account
  • This link expires 10 minutes after you close the presentation
  • A maximum of 30 users can follow your presentation
  • Learn more about this feature in our knowledge base article

Do you really want to delete this prezi?

Neither you, nor the coeditors you shared it with will be able to recover it again.

DeleteCancel

Make your likes visible on Facebook?

Connect your Facebook account to Prezi and let your likes appear on your timeline.
You can change this under Settings & Account at any time.

No, thanks

Application: The Costs of Taxation

No description
by

Kaya Dasha

on 19 November 2014

Comments (0)

Please log in to add your comment.

Report abuse

Transcript of Application: The Costs of Taxation

Learning objectives:
By the end of this chapter, students should understand:

how taxes reduce consumer and producer surplus.
the meaning and causes of the deadweight loss from a tax.
why some taxes have larger deadweight losses than others.
how tax revenue and deadweight loss vary with the size of a tax.
Students will learn:
The
cost
of a tax to buyers
and sellers in a market exceeds the
revenue
collected by the government.

the factors that determine the degree by which the cost of a tax exceeds the revenue collected by the
government.
The
deadweight loss of the tax.
It is the fall in total surplus
The sum of consumer surplus, producer surplus, and tax revenue.

Buyers consume
less
and sellers produce
less

These changes
shrink
the size of the market below the level that maximizes
total surplus
.


How a Tax Affects Market Participants
THE DEADWEIGHT LOSS.
The Deadweight Loss of Taxation
It does not matter who a tax is levied on; buyers and sellers will likely share in the burden of the tax.
Application: The Costs of Taxation
The difference between
before-tax and after-tax
The determinants of deadweight loss
The more elastic the supply curve, the larger the deadweight loss of the tax
Quantity supplied responds
ONLY SLIGHTLY
to changes in the price
Quantity supplied responds
SUBSTANTIALLY
to changes in the price
Lessons from the figures
A tax has a deadweight loss because it induces buyers and sellers to change their behavior.
The tax raises the price paid by buyers, so they consume less.
The tax lowers the price received by sellers, so they produce less.
The size of the market shrinks below the optimum.
The elasticities of supply and demand measure how much sellers and buyers respond to the changes in the price
The greater the elasticities of supply and demand, the greater the deadweight loss of a tax.
DEADWEIGHT LOSS AND
TAX REVENUE
AS TAXES VARY
DEADWEIGHT LOSS AND TAX REVENUE FROM THREE TAXES OF DIFFERENT SIZE.
Very large deadweight loss
it has reduced the size
of the market so much,
the tax raises only a
small amount of revenue.
Full transcript