Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed.

PART 3 Markets and Welfare

Chapter 8 of 36 Application: The Costs of Taxation

Section 11 of 11

…

Chapter 8 conclusion.

One of the Ten Principles of Economics, #6: markets are usually a good way to organize economic activity.

Here we have seen when government imposes taxes on buyers or sellers of a good

· society loses some of the benefits of market efficiency

· total consumer + supplier surplus loss exceeds the tax revenue gain

Taxes impose costs on market participants not only because taxes transfer resources from those participants to the government but also because they alter incentives and distort market outcomes.

Governments and economists attempt to design a tax system with the right balance between

· lower taxes and bigger economy

· higher taxes and more government services

(end of Chapter 8 of 36)

… …

Congratulations! 8/36 = 22% of way to becoming a competent economist.


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