Overview
Tax burden and deadweight loss are crucial concepts in economics that illustrate the effects of taxation on market efficiency. Tax burden refers to the economic impact of taxes on consumers and producers, while deadweight loss represents the loss of economic efficiency when taxes distort market equi...
Key Terms
Example: The tax incidence of a sales tax may fall more heavily on consumers than producers.
Example: If a consumer is willing to pay $10 for a product but buys it for $7, their consumer surplus is $3.
Example: If a producer is willing to sell a product for $5 but sells it for $8, their producer surplus is $3.
Example: In a perfectly competitive market, resources are allocated efficiently, maximizing total surplus.
Example: If the price of a good increases and the quantity demanded decreases significantly, the demand is elastic.
Example: In a competitive market, the equilibrium price is where the supply curve intersects the demand curve.