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Principles of Microeconomics


Cost of Taxation


This topic applies the tools of welfare analysis to the subject of per-unit taxes. When a per-unit tax is implemented, the definition of total surplus becomes the sum of consumer surplus, producer surplus and tax revenue. But per-unit taxes prevents some mutually-beneficial trades from taking place, which results in a deadweight loss. The Pencasts for this topic examining the following: how per-unit taxes affect market efficiency, the relationship between elasticity and deadweight loss, the relationship between the size of a per-unit tax and the amount of tax revenue the government receives, and the relationship between the size of a per-unit tax and the deadweight loss that per-unit taxes cause.


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Taxes and Market Efficiency

This Pencast uses the tools of welfare accounting to demonstrate the inefficiency resulting from a per-unit tax. [Play Pencast]


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Elasticity and Deadweight Loss

Two aspects of a market determine the size of the deadweight loss caused by a per-unit tax: the size of the tax and elasticity. This Pencast holds constant the size of the tax and illustrates how the size of the deadweight is determined by elasticity. [Play Pencast]


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Tax Size and Revenue

This Pencast shows how to construct the "Laffer curve," which illustrates the relationship between tax revenue and the size of a tax. [Play Pencast]


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Tax Size and Deadweight Loss

This Pencast shows the relationship between deadweight loss and the size of a tax. It illustrates the idea that deadweight loss increases at an increasing rate as the size of a tax increases. [Play Pencast]


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