Microeconomics 23 Wednesday, October 25, 2006

Microeconomics 23 Wednesday, October 25, 2006 - Demand...

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Wednesday, October 25, 2006 Microeconomics Regardless of how the tax is levied, the implications are equivalent. The amount the buyers end up paying and the amount that sellers end up receiving are the same in both cases P CS S Pc Dead Weight loss $0.20 P*0 Ps Tax Revenue PS D Qt Q*0 Q Taxes put a wedge between supply and demand Taxes cause inefficiency P S No Tax Tax A Consumer surplus A+B+E A Pc B E Producer surplus C+D+F D P*0 C F Tax revenue 0 B+C Ps D Total surplus A+B+C+D+E+F A+B+C+D D Qt Q*0 Q E + F are dead weight loss. It’s the decrease in TS. The Elasticity of Supply and demand determine how the tax burden is divided between consumers and producers.
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Wednesday, October 25, 2006 P S Relatively Inelastic More Producer Surplus is lost Pc P*0 D Relatively Elastic Ps Qt Q*0 Q Demand relatively elastic Sellers bear most of the tax burden
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Unformatted text preview: Demand relatively inelastic P Pc S Relatively Elastic P*0 More Consumer Surplus is lost Ps D Relatively Inelastic Qt Q*0 Q Demand relatively inelastic Consumers bear most of the tax burden Demand relatively elastic P Pc S P*0 Consumer Surplus is all that is lost D Q*0 Q Perfectly Inelastic Demand = consumers bear all of the tax burden Wednesday, October 25, 2006 P S P*0 D Producer Surplus is all that is lost Ps Qt Q*0 Q Perfectly Elastic Demand = Sellers bear all of the tax burden P S P*0 Producer Surplus is all that is lost Ps D Q*0 Q Perfectly Inelastic Supply = Sellers bear all of the burden P Pc P*0 S Consumer Surplus is all that is lost D Qt Q*0 Q * Perfectly Elastic Supply = Consumers bear all of the tax burden...
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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 23 Wednesday, October 25, 2006 - Demand...

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