ch19_tax_burden - Chapter 19- Tax Burden elasticity- a...

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Chapter 19- Tax Burden elasticity - a measure of the responsiveness of quantity demanded or quantity supplied to one of its determinants price elasticity of demand (or elasticity of demand)= percentage change in quantity demanded divided by the percentage change in price Elasticity of Demand approaches infinity Perfectly Elastic >1 Elastic =1 Unit Elastic <1 Inelastic 0 Perfectly Inelastic elastic demand -(>1), flat inelastic demand - (<1), steep perfectly elastic demand - horizontal perfectly inelastic demand - vertical
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Tax Burden No Tax $2 Tax on Firms Price (firms charge) Demand Supply Price (firms charge) Demand Supply $10 6 18 $10 $9 8 16 $9 $8 10 14 $8 $7 12 12 $7 $6 14 10 $5 16 8 The tax is levied on firms. When the firm charges a price of $10 in the market, it receives $10 from consumers. After the firm receives the $10, however, it must send $2 to the government (because the firm is legally responsible for paying the tax). At the end of the day, then, the firm is left with only $8. When it receives $8 at the end of the day, the firm is willing and able to supply only 14 units of the good. when the tax is levied on suppliers , the supply curve shifts up by the full amount of the tax who bears the burden of the tax? (Example A) consumer’s burden - what pay now at end of day- what paid at end of day before tax producer’s burden - what received at end of day before tax- what receive now at end of the day 2
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This note was uploaded on 09/13/2009 for the course PAM 2040 taught by Professor Lewis during the Spring '07 term at Cornell University (Engineering School).

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ch19_tax_burden - Chapter 19- Tax Burden elasticity- a...

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