Friday, February 27, 2009






For those unfamiliar and still feeling alienated with the concepts discussed above, the diagrams above help depict the concepts more clearly. The diagram above depicts the supply and demand relationship of a typical good with an elastic supply curve. The tax drives down the demand as indicated and creates a DWL indicated by the orange shaded geometric region. The diagram below depicts a market with a fixed supply such as housing. As can be illustrated in the diagram, no DWL results from a tax.

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