4 PPT_Excise_Taxes

4 PPT_Excise_Taxes - 3 Methods all give same result Gains...

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Excise Taxes Fundamental Point to remember about taxes: With a tax present, there are 2 prices of interest: Price paid by demander: P D Price received by supplier: P S
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Quantity vs. Value Tax Quantity tax: Levied per unit exchanged
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Quantity vs. Value Tax Value tax: Expressed in % terms
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Tax Incidence and Tax Burdgen Who bears the burden of the tax is not determined by who actually “pays” the tax. The accurate measure of the burden of the tax is the change in economic circumstances as a result of the tax. i.e., how do P D and P S change relative to the case where there was no tax?
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Market Effect of a Quantity Tax
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Tax Graphs
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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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4 PPT_Excise_Taxes - 3 Methods all give same result Gains...

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