Chapter 8 - Taxes Flashcards
1
Q
Tax
A
A tax:
- drives a wedge between the price buyers pay and the price sellers receive
- raises the price buyers pay and lowers the price sellers receive
- reduced the quantity bought & sold
2
Q
Revenue from Tax
A
Revenue from tax = tax * Qt
3
Q
Deadweight loss
A
Deadweight loss of a tax is the fall in total Surplus that results from a market distortion such as tax
4
Q
DWL & the size of the tax
A
When tax rates are low, raising them doesn’t cause much harm, and lowering them doesn’t bring much benefit.
When tax rates are high, raising them is very harmful, and cutting them is very beneficial
5
Q
The Laffer Curve
A
Shows the relationship between the size of the tax & tax revenue
