Chapter 8

Chapter 8 wasn’t too bad to understand, but I did have to take my time to look and analyze the graphs along with the sections they correlated with to make sure the concepts made sense. Once the ideas processed, it was easy to see how they could be thought of as common sense or obvious responses. Hopefully I’ll still think that on test day.

The chapter focused on taxation effects on consumer and producer surplus, and how it negatively affects their gains. The tax reduces the amount of surplus gained by both consumers and producers, and the loss of the surplus often exceeds the gain of tax revenue gained by the government creating a deadweight loss. The deadweight loss reflects the loss of trades or market reduction caused the loss of incentives from producers and/or consumers created from the tax. The measure of the deadweight loss can be analyzed through the elasticity of the market; the more elastic a market, the larger the deadweight loss, and the larger the tax, the larger the deadweight loss. The tax revenue will increase at first with the increase of the tax, but will then decline with the growth of the tax until the market shuts down from loss of incentives. The chapter seems logical to follow, I think practice with the graphs would be helpful though.