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A-Level Economics · Laffer curve diagram question

Why is tax revenue ZERO at both ends of the curve — at a 0% rate AND at a 100% rate?

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The diagram

The answer

At 0% the government takes nothing; at 100% nobody would produce anything, so there is nothing to take. Take 0% of everything and you get nothing. Take 100% of everything and people just do nothing — so you still get nothing. Both endpoints are agreed by everybody. At a 0% rate the government collects no revenue by construction. At a 100% rate nobody would make anything, because every pound earned is taken — no output, so no tax base, so no revenue. Those two zeros are what the whole diagram is built from.

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This is one of 5 questions on the laffer curve diagram — every corner lettered, every wrong answer diagnosed.

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