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rises as supply bees less ownprice elastic or as demand bees more ownprice elastic. Deadweight Loss and OwnPrice Elasticities ?A quantity tax imposed on a petitive market reduces the quantity traded and so reduces gainstotrade (. the sum of Consumers’ and Producers’ Surpluses). ?The lost total surplus is the tax’s deadweight loss( 額外凈損失) , or excess burden. Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* No tax Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* No tax CS Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* No tax PS Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* No tax CS PS Deadweight Loss and OwnPrice Elasticities $t qt CS The tax reduces both CS and PS p D(p), S(p) Market demand Market supply p* q* pb ps PS Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* $t pb qt ps CS PS The tax reduces both CS and PS, transfers surplus to government Tax Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* $t pb qt ps CS PS The tax reduces both CS and PS, transfers surplus to government Tax Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* $t pb qt ps CS PS The tax reduces both CS and PS, transfers surplus to government Tax Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* $t pb qt ps CS PS The tax reduces both CS and PS, transfers surplus to government, and lowers total surplus. Tax Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* $t pb qt ps Deadweight loss Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply p* q* $t pb qt ps Deadweight loss falls as market demand bees less own price elastic. Deadweight Loss and OwnPrice Elasticities p D(p), S(p) Market demand Market supply ps= p* $t pb qt = q* Deadweight loss falls as market demand bees less own price elastic. When ?D = 0, the tax causes no deadweight loss. Deadweight Loss and OwnPrice Elasticities ?Deadweight loss due to a quantity tax rises as either market demand or market supply bees more ownprice elastic. ?If either ?D = 0 or ?S = 0 then the deadweight loss is zero. Examples of Equilibrium Analysis ?Price ceiling ?Minimum price ?Agricultural price control ?Minimum wage p D(p), S(p) p* q* pmax D A B C E F qS Price control DCS=CE DPS=CF DWL=EF +waiting in line qD p D(p), S(p) p* q* pmax D A B C E F qmax Price control with rationing DCS=CE DPS=CF DWL=EF +corruption p D(p), S(p) p* q* ps D A B C E F qmax Price floor with acreage control Payment=E+F+G DCS=BE DPS=BF+payment Government loss=payment DWL=EF G Minimum Wage ?Single sector single type of labor ?Covered vs. uncovered sector ?Skilled vs. unskilled worker