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Learning Goal: I’m working on a writing multi-part question and need a reference to help me learn.
Please write a separate response for both discussion post with an added reference to support your reponse.
1. A lot of companies that are competing in the same market has issues with deadweight loss. Deadweight loss is “ a cost to society created by market inefficiency, which occurs when supply and demand are out of equilibrium.” (Tuovila, 2022) Dead weight loss is caused by inefficient allocation of resources. What deadweight loss effects the balance of supply and demand. It allows the customers to lose out on products and potential revenue in their supply. To sum it up it effects the economic inefficiency. When it comes down to taxes for a company some tax burden is normally between buyers and sellers or producers and consumers. When its regarding supply is more elastic than demands it’s the buyers who will be dealing with tax burden and vice versa if demand is more elastic than supply sellers will be responsible for tax burden.
2. A deadweight loss is any economic loss suffered by consumers or producers that occurs as a result of market imperfections or government policies. Hirschey, M. (2008). The causes of deadweight losses are because the government sets a limit on how low a price can be charged for a good or service, the government sets a limit on how high a price can be charged for a good or service, and the government charges above the selling price for a good or service. (CFI Team April 25, 2022).
Per the article an increase in tax progressivity raises the deadweight loss per dollar of tax revenue. This can be seen intuitively by noting that the deadweight loss of the tac depends on the weight average of the squared marginal tax rates while the revenue depends on the same weighted average of the marginal tax rates themselves. The greater convexity of the more progressive marginal rate schedule raises the mean of the squared marginal rates proportionately more than it raises the mean of the rates themselves. (Feldstein November 1, 1999).
The major factors that determine who will bear the burden of tax or the incidence of a tax is corporations and the consumers because corporations pay all the taxes and consumers are affected because they pay the corporations in order for them to continue to stay in business. Per the article Shareholders bear some of the corporate income tax burden, but they aren’t the only ones. Over time, others bear some of the burden because of a chain reaction that begins with the shareholders. (Tax Policy Briefing Book 2022). When the burdens fall on the corporations, they start the raise the pricing on goods in order to relief some of the taxes on them at the end of the year. The consumers start to feel the burden because they aren’t able to afford the high prices that are continuously going up.
Conclusion, deadweight loss has a huge effect on the growing population because the high raises on goods leading taxes to going up and in order for the government to benefit more, they have to tax more on businesses. For example, in 2020 due to the pandemic many businesses had to shut down and that caused the government to step in and help out especially small businesses so that they could continue to stay in business. With the taxes going up the price on goods started to go up because the government would have to profit back the money that they lent out to assist with the business that needed help in order to keep their employees on the payroll and avoid from shutting down for good therefore the government raised the taxes on corporations and businesses. With the raise in the goods people can’t afford it leading the economy into a recession.