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Principles Of Economics Mankiw > Chapter 8 (27-28 July 2016)

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Sang | 58 comments Mod
Chapter 8 notes and discussion.


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Chapter 8 Applications: The Costs of Taxations

8.1
• deadweight loss: the fall in total surplus that results from a market distortion, such as a tax.the greater the elasticities of supply and demand, the greater the deadweight loss of a tax.

taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade. Moreover, the losses to buyers and sellers from a tax exceed the revenue raised by the government.


8.2
the laffer curve illustrates that because a tax reduces the size of the market, tax revenue does not continually increase. it first rises with the size of a tax, but if the tax gets large enough, tax revenue starts to fall.

when tax rates are so high, a cut in tax rates will increase tax revenue.

because the cut in tax rates was intended to encourage people to increase the quantity of
labor they supplied, the views of Laffer and Reagan (whose platform was tax-cutting) became known as supply-side economics.


message 3: by Sang (new)

Sang | 58 comments Mod
Chapter 8 Application: the Cost Of Taxation

The Deadweight Loss of Taxation

Deadweight loss: the fall in total surplus that results from a market distortion, such as tax

The losses to buyers and sellers from a tax exceed the revenue raised by the government.

Taxes cause deadweight losses because they prevent buyers and sellers from realizing some of the gains from trade.

The determinants of the deadweight loss
The greater the elasticities of supply and demand, the greater the deadweight loss of a tax.

The deadweight loss of a tax rises even more rapidly than the size of the tax.


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