QUESTIONS FOR REVIEW

1. What happens to consumer and producer surplus when the sale of a good is taxed? How does the change in consumer and producer surplus compare to the tax revenue? Explain.

2. Draw a supply-and-demand diagram with a tax on the sale of the good. Show the deadweight loss Show the tax revenue.

3. How do the elasticities of supply and demand affect the deadweight loss of a tax? Why do they have this effect.

4. Why do experts disagree about whether labor taxes have small or large deadweight losses?

5. What happens to the deadweight loss and tax revenue when a tax is Increased?

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