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2/25 - ice cream cones on the shelf P>P in the presence...

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2/25/08 Taxation- Advalorem does not = sales tax Tax is charged per unit transacted, not per dollar spent. Assume these taxes are always charged to the seller. For that reason, we need to go back and revisit the supply curve. It’s all about willingness. Suppose the government says, “every ice cream Cone sold, you must remit $.10 to the gov. What would the price paid by the customer now Have to be in order Joe to still be willing to set 4
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Unformatted text preview: ice cream cones on the shelf? P >P in the presence of a tax, true enough- but P isn’t equal to P + tax because the demand curve has a slope. The price goes up, but not by the full amount of the tax = “tax incidence”- the share of the tax paid by one of the two parties in the transaction. “Inc. Cons.”- Incidence on the consumer/tax paid =P - P “Inc. Prod.”- Incidence on the producer/tax paid Example:...
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