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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

How does a tax on a good affect the price paid by buyers, the price received by sellers, and the quantity sold?

To determine
The impact of a tax on buyers, sellers and price level in the economy.

Explanation

The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The efficient tax is the tax which has the lowest excess burden compared to the revenue raised from the tax. The excess burden is known as the deadweight loss. Thus, the tax is efficient when it imposes the least excess burden relative to the revenue raised through it.

When a tax is imposed, it will lead to increase the price...

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