ECON 1101 1st Edition Lecture 12 Outline of Last Lecture I. Tax BurdenII. Welfare analysisa. Allocation with TaxOutline of Current Lecture I. SubsidiesII. Application of Taxes: Medicare and Social SecurityIII. Intro to price ceilingsCurrent LectureWhen you tax the total surplus is not efficient. Adding tax to a good creates a DWL.Surplus measures how efficient a society is.Can we change efficiency with a subsidy and not a tax?A SUBSIDY is created by the government to encourage product consumption. An example wouldbe hybrid vehicles. Are suppliers and demanders happier with a subsidy? Yes. Subsidize to the amount of buyers you want. Subsidy comes from the government, so you must find government surplus. With a subsidy the government is “negatively happy” because they lose revenue. Government revenue = subsidy amount x units soldA subsidy is still not efficient.Government in the economy IS NOT efficient.READ MEDICARE AND SOCIAL SECURITY AT HOME, KELVIN WILL NOT COVER IT IN LECTURE IN ORDER TO SAVE TIME AND GIVE FRIDAY AND MONDAY LECTURES OFF BEFORE THE MIDTERM.A Price Ceiling is something that keeps the price from going above a certain amount. (Example would be making it illegal to sell bottles of water above $1.00).These 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.It creates an artificially lower price, and causes a shortage in the quantity produced compared to what is demanded. A NON-BINDING price ceiling is one that is above the equilibrium price and does not affect the market. A BINDING price ceiling is one that is below the equilibrium price and has effects on the market like the bottle of water
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