1. + Deadweight Loss and Efficiency

2. + Why pay taxes?

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5. + Consumer and Producer Surplus Efficiency and Deadweight Loss In a market, there are gains to be made from trade. Producers AND consumers benefit, and the efficiency of a market, the point where no one can be made better off without making others worse, is the reason why. Efficiency Can you improve on a market? Many have tried.

6. + Consumer and Producer Surplus Reallocate consumption? Reduces consumer surplus, takes items away from someone how values them more, and gives them to consumers who value these items less. Reallocate sales among sellers? Increases total cost and reduces producer surplus Changes in Quantity traded? Shortages and Surpluses!

7. + Consumer and Producer Surplus If market is at equilibrium, there is no way to increase gains from trade! Any other outcome reduces total surplus HOWEVER… Just because a market is efficient does not mean it is fair. Equity Also, markets sometimes fail, and fail to deliver efficiency. (no longer maximizing total surplus)

8. + Consumer and Producer Surplus Equity and Efficiency Society does care about what is fair, and markets can not always fill this need. MUST sacrifice efficiency for fairness in some cases. Taxes Progressive Regressive Proportional (flat) Excise (sales)

9. + Consumer and Producer Surplus Excise Tax on Quantities and Prices Tax imposed on hotel owners

10. + Consumer and Producer Surplus Tax imposed on consumers. Tax incidence- WHO really pays the tax? And how much?

11. + Consumer and Producer Surplus Elasticity and effect on tax incidence When consumers pay most of the tax!

12. + Consumer and Producer Surplus When producers pay most of the tax!

13. + Consumer and Producer Surplus Benefits of Taxation Revenue (Tax per unit) X Q d = Tax Revenue

14. + Consumer and Producer Surplus Costs of Taxation Deadweight Loss Prevents mutually beneficial transactions… Like a quota, creates deadweight loss.

15. + Consumer and Producer Surplus Other Specific Costs: Administrative- not shown in deadweight loss, but how much does it cost to collect the tax, and pay for it? Alternatives? Lump-sum tax example- Fair? (same for all) British poll taxes NO… unfair. BUT, incredibly efficient Value Added Taxes (VAT)? Some claim fair and efficient

16. + EX: Carbon Taxes