Principles of Microeconomics: Chapter 8Taxes place a wedge in between the price buyers pay and the price sellers receive. Because of this, q sold falls below the level that would be sold w/o tax. How a Tax Affects Market Participants:CS and PS for buyers and sellers.Gov't: T (size of tax in terms of price) x Q = revenueThe losses to buyers and sellers from a tax exceed the revenue raised by the government. Deadweight loss: the fall in total surplus that results from a market distortion, such as a tax^this amount does not end up as revenue or surplus to anyoneTaxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains of trade. Determinants of DWL:Elasticity of Supply: The more elastic the supply curve, the larger the deadweight loss. Elasticity of Demand: The more elastic the demand curve, the larger the deadweight loss. ^this is due to the fact that taxes induce buyers and sellers to changetheir behaviors, so if the supply and demand are inelastic, buyers andsellers are not going to change their behaviors too drastically. Less DWL. DWL and Tax Revenue as Taxes Vary:Taxes rarely stay the same for long periods of time. As the size of a tax grows, so does its DWL. The revenue first increases and then decreases as tax grows larger (bell
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