Microeconomics 22 Friday, October 20, 2006

Microeconomics 22 Friday, October 20, 2006 - effective...

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Friday, October 20, 2006 Microeconomics TAXES TAX INCIDENCE is how the tax in which the tax burden of a tax is shared among participants in a market. WIDGET Effective P * Tax is levied on the consumer Price paid S * Tax is $0.20 By consumers $1.15 * Demand curve shifts left * Taxes reduce the size of market $1.00 $0.20 Price Received $0.95 by Producers D2 D1 Qt Q0 Q To induce consumers to buy any given quantity, the price must be $0.20 lower because the willingness to pay has decreased by $0.20 as a result of the tax. Sellers are worse off because they receive a lower price for each widget than before ($0.95 instead of $1.00) Although consumers pay a lower price to sellers, consumers are worse off because the
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Unformatted text preview: effective price rises from $1.00 to $1.15 • Buyers and sellers share tax burden Friday, October 20, 2006 WIDGET P S2 * Tax is levied on the producer Price paid S1 * Tax is $0.20 By consumers $1.15 * Supply curve shifts left Effective $1.00 $0.20 Price Received by Producers $0.95 D1 Qt Q0 Q • To induce sellers to supply any given quantity, the price must be $0.20 higher because the willingness to accept has increased by $0.20, a result of the tax • Consumers are worse off cause they pay a higher price ($1.95 instead of $1.00) • Although sellers receive a higher price from consumers, sellers are worse off because the effective price received falls from $1.00 to $0.95...
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This note was uploaded on 03/20/2008 for the course EC 201 taught by Professor Xasdf during the Fall '08 term at N.C. State.

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Microeconomics 22 Friday, October 20, 2006 - effective...

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