U2 M50 Taxes-Efficiency and Deadweight Loss Slides HM (1) (copy)

Consumer Surplus

The difference between what consumers are willing to pay for a good and what they actually pay, represented by the area above the price level @ equilibrium and below the demand curve.

Producer Surplus

The difference between the price producers receive for a good and the minimum price they would be willing to accept, represented by the area below the price level @ equilibrium and above the supply curve.

Deadweight Loss

The loss of economic efficiency that occurs when the equilibrium outcome is not achievable or not achieved, often due to taxes or price controls.

Excise Tax

A per-unit tax imposed on producers for each unit sold, aimed at reducing the consumption of goods deemed harmful or undesirable.

Tax Incidence

The distribution of the tax burden between consumers and producers, which depends on the relative elasticities of demand and supply.

Total Surplus

The sum of consumer surplus and producer surplus, representing the overall economic benefit to society from the production and consumption of goods.

Equilibrium Price

The price at which the quantity of a good demanded by consumers equals the quantity supplied by producers.

Tax Revenue

The income generated for the government from taxes, calculated as the tax rate multiplied by the quantity sold.