Econ11Fall2007NotesForLecture_7Sept26

Econ11Fall2007NotesForLecture_7Sept26 - Lecture VII Notes...

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Lecture VII Notes For Sept 26, 2007, I. Short Run Effects of Lowering Gasoline Taxes II. Supply and Demand Analysis of Subsidies III. Using S & D Analysis in "Odd" Market Situations IV. Own-price Elasticity of Demand V. Income Elasticity of Demand I. Short Run Effects of Lowering Gasoline Taxes A. Consider short run market equilibrium, supply curve shows that U.S. national supply is virtually fixed in the short run. B. Gasoline tax = $1.00, given shape of U.S. short run demand and supply curves, virtually all of the tax is “paid” in the short run by producers. C. Eliminating gasoline tax has little effect on price but raises return to producers significantly. D. In the long run, supply is very flexible and much more of the tax is “paid” by consumers. $/gallon S Tax S S 3.00 P* P Gross 2.00 P Net 1.00 D Q’ Q*
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II. Supply and Demand Analysis of Subsidies A. Market equilibrium begins at Q*, P* B. Implement a 25 cent subsidy and supply is based on the gross of subsidy supply curve shifted down by 25
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This note was uploaded on 04/18/2008 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Econ11Fall2007NotesForLecture_7Sept26 - Lecture VII Notes...

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