Chapter 8 The Cost of Taxation Tax Revenue TxQ Total surplus consumer surplus producer surplus tax revenue The amount of deadweight loss and tax revenue also depends on the elasticity of supply and demand The more elastic the supply or demand curve is the more deadweight loss and tax revenue The more inelastic the supply and demand curve is the lesser the deadweight loss and tax revenue are The 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 Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade The greater the elasticities of supply and demand the greater the deadweight loss of a tax Tax Distortions and Elasticities Deadweight Loss and Tax Revenue as Taxes Vary Higher tax reduce size of market
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