L4 - Economics 101:Principles of Microeconomics Professor...

Info icon This preview shows pages 1–7. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Economics 101:Principles of Microeconomics Professor Jo Hertel Announcement: note exam page Lecture 4: Government intervention (iii): Excise taxes The equivalence of quotas/taxes The incidence of a tax How tax effects vary in different markets Government intervention (iv): Prohibiting markets Elasticity – a useful concept. The price elasticity of demand
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
2 Recap & summary: Quotas To achieve quota q m , the government allows exactly q m suppliers into the market. Suppliers will charge consumers p c . The q m suppliers want to enter the market if they get at least p S per unit. Government can charge license fee between 0 and the quota rent – the latter will be our standard case. p q 110 5 15 22 D S p* q* E 1 q m =quota p C quota rent p S
Image of page 2
3 Intermezzo: How fees and taxes affect supply and demand A tax of $10 per textbook sold, to be paid by suppliers: every supplier must receive $10 more to sell his book new Cost $55 Betty $45 Carlos $20 Engelbert $35 Donna $69 Andrew Supply shifts up by $10 Demand remains the same quantity of books 1 2 3 4 5 59 45 35 25 10 price of books demand supply
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
4 Intermezzo: How fees and taxes affect supply and demand A tax of $10 per textbook sold, to be paid by consumers: each consumer is willing to hand $10 less to the producer Willingness to pay the supplier $35 Brad $25 Claudia $0 Edwina $15 Darren $49 Aleisha Demand shifts down by $10 Supply remains the same quantity 1 2 3 4 5 59 45 35 25 10 price of books $10
Image of page 4
5 Summary: How fees and taxes affect supply and demand A tax of $t per textbook sold to be paid by consumers shifts the demand curve down by $t at any quantity A tax of $t per textbook sold to be paid by producers shifts the supply curve up by $t at any quantity $t D $t S
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
6 Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Definition Government intervention (iii) – taxes An excise tax is a tax per unit sold of a good. An excise tax of $t levied on consumers requires the consumer to pay $t to the government per unit bought.
Image of page 6
Image of page 7
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern