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Unformatted text preview: 3 Methods all give same result Gains and Losses P Q Algebra of Taxes Inverse Demand: PD = 20 Q Inverse Supply: PS = 10 + Q Algebra of Taxes Inverse Demand: PD = 20 Q Inverse Supply: PS = 10 + Q Passing Along a Tax Can firms pass a tax on to consumer? To figure this out, compare P D to previous P*. It all depends on the elasticities of demand and supply. Lets consider some special cases Perfectly Elastic Supply P Q Perfectly Inelastic Supply P Q Suggested Homework Exercise What happens when:Demand is perfectly elastic?Demand is perfectly inelastic?...
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 Winter '08
 staff
 Excise Taxes

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