Calculate Tax Revenue And Deadweight Loss

The deadweight loss can be calculated for any deficiency that is occurred due to imbalanced market equilibrium tax or any other factors as mentioned above.

Calculate tax revenue and deadweight loss. For the calculation of deadweight loss you will require four different figures. The original price of the product in question p o the new price for the product once taxes price ceiling and or price floor is taken into account p n the quantity originally requested of the product in question q o the new quantities of the product requested once taxes price. Therefore no exchanges take place in that region and deadweight loss is created. Why do taxes exist.

The blue area does not occur because of the new tax price. How to calculate deadweight loss. To figure out how to calculate deadweight loss from taxation refer to the graph shown below. Deadweight loss is the difference between a new tax being imposed and how output is reduced as a result of the new tax.

Deadweight loss also known as excess burden measures the reduction of economic surplus above and beyond any tax revenue. We discuss how taxes affect consumer surplus and producer surplus and discuss the concept of deadweight lo. The deadweight loss is equal to the difference between the two situations divided by two. Calculating deadweight loss is rather straight forward.

The equilibrium price and quantity before the imposition of tax is q0 and p0.