ECON 202 1nd Edition Lecture 16 Outline of Last Lecture I. Efficiency of Marketsa. Total Surplusi. Price Floorb. Economic Impact of TaxesOutline of Current Lecture II. Efficiency of Marketsa. Taxes and Efficiencyi. Tax IncidenceCurrent LectureEfficiency of MarketsTaxes and EfficiencyExample: Tax Revenue = tax per unit of output multiplied by the number of unitsOr the different between the price buyers pay and the price sellers keep times the quantity.Tax Revenue=(PB−PS)×QATThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute. PBSDBQ*P*ACPQATEFGPSBefore Tax After TaxPrice Buyers Pay P* PBPrice Sellers Keep P* PSQuantity Q* QATConsumer Surplus A+B+C AProducer Surplus E+F+G GTax Revenue 0 B+EDeadweight Loss 0 C+FSociety is worse off when there is a tax, because there is a deadweight loss, not because the government gets the tax revenue. Total Surplus is still A+B+E+G. Tax creates disincentives so lessis bought and sold.Tax Incidence – who bears the burden of a tax; not necessarily who the tax is collected from- Depends on elasticityExample: A $3 Excise tax is collected from sellersCase 1: Demand is relatively inelasticCase 2: Demand is relativelyelasticS1S2DQQ*QAT$10$12.50$9.50S1S2DQQ*Q2$10$10.25$7.25Price Buyers Pay Price Sellers Keep IncidenceBefore Tax $10 $10 $0After Tax: Inelastic Demand$12.50 $9.50 Buyers Pay: $2.50 of taxSellers Pay: $0.50 of taxAfter Tax: Elastic Demand$10.25 $7.25 Buyers Pay: $0.25 of taxSellers Pay: $2.75 of
View Full Document
Unlocking...