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Evaluate the following two statements. Do you agree? Why or why not?a. "A tax that has no deadweight loss cannot raise any revenue for the government."b. "A tax that raises no revenue for the government cannot have any deadweight loss."
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Ah, First we will review the concept of dead weight lost. That weight loss is the fall in total surplus that results from a market distortion such as text. We can illustrate that weight loss from attacks in a supply and demand diagram. The red dot represents the initial equilibrium where there's no text after test, the quantity reduced to a smaller level. The size of the tax is represented by a vertical distance in blue, and they're rectangular in blue. Represent the text revenue, which is collected by the government. You can see that after text, the buyers pay a higher price than the initial price equilibrium, and the sellers receive a price that is lower than the price in the initial equilibrium. That weight loss is this area, the triangle. This wrangle of which area is decided by the size of the text and the reduction in quantity. The size of the triangle would depend on their elasticity of the supply curve and the demand curve. Now let's come to the first statement. Yeah, attacks that has no deadweight loss can raise revenue for the government. This is a new, incorrect statement. It is incorrect because we can find unexamined all where attacks with no deadweight loss but still raise revenue for the government. It happened when the government imposed the text and demand. Our supply is perfectly in elastic. Yeah, So this is a situation of a in elastic supply and this is the illustration of perfectly in elastic demand. When we have perfectly elastic demand or supply attacks will have no effect on the quantity and it causes no deadweight loss but still raise revenue for the government. At its part, A and in part B attacks that raises no revenue for the government can have any dead weight loss. This is also incorrect. A counter example is the case of a 100% text imposed on sellers. Yeah, the sellers in this case would not supply any of the good, so the text will raise no revenue. Yet the text has a large deadweight loss because it reduces the quantity sold to zero. So we can illustrate that on a diagram of supply and demand as follow. Yeah, this is the initial equilibrium with a 100% tax on the sellers or on the sales of goods. Then the deadweight loss would be the whole area here, and the quantity given this very heavy text is zero
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