Dead Weight Loss Graph
Microeconomics – Taxes?
Need an explanation (and or graph) of how lump-sum taxes affect supply and demand. What i don’t understand is how lump-sum taxes have no dead-weight loss but still somehow affects the graph. My other question is how percent taxes affect supply and demand.
Well lump sum tax just takes money from everything. So proportionally nobody is losing out.
Lets say you 100 dollars to spend on food and clothes. Previously you bought 50$ worth of clothes and 50$ worth of food. That’s 50%.
If they put a tax on clothes you would buy less clothes since the price would go up. It would no longer be 50% and there would be a dead weight loss since a little bit of both wouldn’t be bought.
Now lets assume you tax income. you lose 10$ to taxes. After tax the proportion you buy is still the same. You buy 45$ clothes 45$ food. Proportionally its still 50/50. So theres no dead weight loss.
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