ECON 110Lecture 13Outline of Last Lecture I. Price Floorsa. Binding and non-bindingb. Affect on marketII. Taxesa. Definitionb. Tax IncidenceOutline of Current Lecture I. Tax revenueII. Showing a taxa. Imposed on Buyersb. Imposed on SellersIII. Tax effectsIV. Deadweight lossCurrent Lecture - Continuing with taxesTax revenue generated will equal the number of units sold times the tax. 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. In this graph, the number of units soldbefore the implement of the tax is Qo ,and after the implement of the tax is Q1 . The tax revenue in this case will be the amount of the tax (which is thedifference between the price the consumers pay and the price the producers receive,) times Q1 .Showing a tax- When a tax is imposed on buyers, shift the demand curve. - When a tax is imposed on seller, we shift the supply curve.*It does not matter which side we impose the tax on. When you impose a tax in a graph… Tax effects We have noted the impact of elasticity, or more precisely—how differences in elasticity—affects the market- Less elasticity means there will be a smaller drop in quantity demanded when a tax is implemented, and in all likelihood, the buyers will shoulder more of the tax burden. More elastic goods cause the seller to be most affected.1. Find the place where the distance between the demand and the supply curve is exactly equal to the amount of the tax. (Here that is the line between a and b.)2. The longitudinal line will be the new amount of units sold (here that is the line Qt , which intersects both a and b. 3. The price the buyers pay will be where thatquantity line intersects with the demand curve (point a), and the amount the sellers receive will be expressed by the intersection of the quantity line with the supply curve (point b.) The greater burden will be on the side whose elasticity is lower. - Tax incidence depends directly on these factors.How do taxes affect efficiency? Taxes change prices, and therefore buyer behavior. - We look for alternatives- We try to avoid the affects of the tax.This causes distortion of economic decision making and an overall reduction of the net benefit to society.Deadweight loss: it's a triangle on the graph, between the quantity sold line and the intersection of the demand and supply curves.NOTE: Deadweight losses increase as the elasticity of demand or supply
View Full Document
Unlocking...