Chapter 8

Chapter 8 focused on how taxes affect the market that they're imposed in by showing how revenue is made from them, along with the costs of that revenue that gets taken away from total surplus between consumers and producers. The loss in surplus, called deadweight loss, can be either big or small, depending on the elasticity of both supply and demand curves. But for most goods in a market, a tax will always result in deadweight loss based on how the market responds to it. Inelastic supply and demand curves cause the deadweight loss to be much less than if they were elastic. But the implementation of taxes can also cause other negative effects, based on opportunity cost, willingness to pay, and how large the tax is. With unfavorable conditions, a trade that might happen based on the situation before the tax won't if it isn't favorable to both parties involved. The tax would then cause not only a loss in surplus, but on the whole trade if it's too big, meaning no tax revenue is received and the market loses out because of it. As the tax increases, more deadweight loss is accrued, meaning it would be very inefficient for it to be implemented if it interferes too much with the market. Because of this. total tax revenue is increasing until it reaches a certain point, where the tax interferes too much that revenue would start going down as people don't want to take part in buying or selling the good or service being taxed.