00:01
Wants to raise taxes while generating no deadweight loss, they should raise taxes on a good with? the answer would be perfectly inelastic demand.
00:14
So as supply and demand become more inelastic, deadweight loss decreases.
00:20
So it makes the most sense that we would want perfectly inelastic demand to generate no deadweight loss.
00:37
Assume that a tax on the market for milk causes a loss of $340 million in consumer and produces surplus combined and creates deadweight loss of $50 million.
00:48
Calculate the total tax revenue.
00:53
So we're given that loss of consumer surplus and produces surplus is equal to total tax revenue plus the deadweight loss.
01:13
So let's try to look at this graphically so we can better understand.
01:27
So here we have our initial consumer and producer surplus.
01:33
Then after the tax, our supply curve shifts to the left.
01:38
And then we have our tax revenue represented by this area.
01:44
Our new consumer surplus is here and our new producer surplus is here.
01:48
So the tax revenue is going to be a part of the loss in the consumer surplus and producer surplus...