The Costs of Taxation — Deadweight Loss, Tax Wedge, and the Laffer Curve Explained | Chapter 8 of Principles of Microeconomics
The Costs of Taxation — Deadweight Loss, Tax Wedge, and the Laffer Curve Explained | Chapter 8 of Principles of Microeconomics How do taxes impact market efficiency and economic welfare? Chapter 8 of Principles of Microeconomics explores the costs of taxation—unpacking why even necessary taxes can lead to unintended market distortions and welfare losses. This summary explains the concept of deadweight loss, the creation of a tax wedge, and the broader implications for government policy, revenue, and growth. 🎥 Watch the full chapter summary below and subscribe to Last Minute Lecture for more textbook breakdowns and academic study guides! How Taxes Affect Markets: The Tax Wedge and Deadweight Loss When a tax is imposed on a good, it creates a tax wedge —the difference between what buyers pay and what sellers receive. This wedge causes fewer trades to occur, reducing overall market activity and creating a deadweight loss : a loss of total surplus that would have...