2030: ECON Lecture 9
Question
o How does the tax get divided between buyers and sellers?
o Does not depend upon from whom the tax is collected
Maximum tax with minimum deadweight loss
o Inelastic items
o Sin Taxes
Alcohol
Cigarettes
Gambling
Relative sensitivity of CStax depends on magnitude of elasticity of supply and
demand
Shipping
o Who bears the cost to ship an item?
100% of the burden of shipping is paid by seller
Theory of the Firm
o Once a firm decides it what wants to sell, you have two decisions
How much do I produce
How much do I charge for it
o Our assumption is that business will be answering these two questions in
order to maximize profits
Sometimes, businesses try to achieve other goals
Either short term or long term
o In order to maximize profit, we need to define profit first
Profit
o = Total revenue- total cost
o Benefit cost
Total revenue (TR)
Price* Quantity
Marginal revenue (MR)
How much to produce