Public Economics Taxation

Feb 3rd, 2012
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Alabama State University
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Deadweight loss refers to loss caused by market inefficiency; for instance, taxation. In our situation Kid Cudi can purchase an ounce of marijuana for $100; but due to tax imposition, Cudi will have to purchase an ounce of marijuana for $166.60. The difference in the cost of an ounce of marijuana before and after the tax imposition is a representation of deadweight loss

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Public Economics Taxation PaperStudent's NameProfessor's NameAffiliationDatePublic Economics TaxationIndifference Curve DiagramIndifference Curve for Guitar (Y-axis) and Marijuana (X-axis)The essential points on the diagram illustrate different points of Kid Cudi's utility in terms of Guitars and marijuana.Equivalent VarianceEquivalent Variance=EVP0=old pricesP1=new pricesU1=new (same) utilityw=wealth levelEV=e(P0U1)-wEV=e(P0U1)-e(P1U1)Consider the prices and utility of marijuana with are altered by taxation;P0=$100 per ounceP1=$166.66 per ounceU1=40 ouncesEV= e(100*40)-e(166.66*40)EV=7241.50Deadweight LossDeadweight loss refers to loss caused by market inefficiency; for instance, taxation. In our situation Kid Cudi can purchase an ounce of marijuana for $100; but due to tax imposition, Cudi will have to purchase an ounce of marijuana for $166.60. Th

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