PROBLEMS AND APPLICATIONS

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PROBLEMS AND APPLICATIONS 1. The market for pizza is characterized by a downward-sloping demand curve and an upward-sloping supply curve a Draw the competitive market equilibrium. Label the price, quantity, consumer surplus, and producer surplus. Is there any deadweight loss? Explain. b. Suppose that the government forces each pizzeria to pay a $1 tax on each pizza sold. […]

U.S. Could Follow Europe’s High-Tax Path

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U.S. Could Follow Europe’s High-Tax Path Americans owe their economic edge over Europeans in part to the fact that they work more, a distinction often attributed to cultural differences: Americans want to consume more, while Europeans enjoy their leisure more. As late as the 1970s, though, the French actually worked longer than Americans. The reason they now […]

CONCLUSION

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CONCLUSION  Modem society cannot exist without some form of taxation. We all expect the government to provide us with certain services, such as roads, parks, police, and national defense. These  public services require tax revenue. This chapter has used the tools developed in the previous chapter to further our understanding of taxes. One of the ten Principles of Economics […]

HE LAFFER CURVE AND SUPPLYSIDE ECONOMICS

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HE LAFFER CURVE AND SUPPLY SIDE ECONOMICS One day in 1974, economist Arthur Laffer sat in a Washington restaurant with some prominent journalists and politicians. He took out a napkin and drew a figure on it to show how tax rates affect tax revenue It looked much like panel (e) of our Figure 6. Laffer then suggested […]

DEADW EIGHT Loss AND TAX REVENUE AS TAXES VARY

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DEAD WEIGHT Loss AND TAX REVENUE AS TAXES VARY Taxes rarely stay the same for long periods of time. Policymakers in local, state, and federal governments are always considering raising one tax or lowering another. Here we consider what happens to the deadweight loss and tax revenue when the size of a tax changes. Figure 6 shows the […]

HE DEAD WEIGHT LOSS DEBATE

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HE DEAD WEIGHT LOSS DEBATE Supply, demand, elasticity, dead weight loss-all this economic theory is enough to make your head spin But believe it or not, these ideas go to the heart of a profound political question: How big should the government be? The debate hinges on these concepts because the larger the dead weight loss of […]

THE DETERMINANTS OF THE DEAD WEIGHT LOSS

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THE DETERMINANTS OF THE DEAD WEIGHT LOSS What determines whether the dead weight loss from a tax is large or small? The answer is the price elasticizes of supply and demand, which measure how much the quantity supplied and quantity demanded respond to changes in the price. Let’s consider first how the elasticity of supply affects the size […]

DEAD WEIGHT LOSSES AND THE GAINS FROM TRADE

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DEAD WEIGHT LOSSES AND THE GAINS FROM TRADE To gain some intuition for why taxes result in dead weight losses, consider an example. Imagine that Joe cleans Jane’s house each week for $100. The opportunity cost of Joe’s time is $80, and the value of a clean house to Jane is $120. Thus, Joe and Jane each […]