econ101 ch5 notes

Econ101 ch5 notes - unaffected ● analogous if consumers instead taxed then the “effective” D-curve shifts down by the amount of the tax but

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excise taxes – taxes on specific commodities specific (unit) tax -causes shift in S or D ex. 18.4 c per gallon federal tax on gasoline ad valorem (percentage) tax -  Consider a unit tax imposed on the producers: recall that S-schedule indicates the required P in order to be willing to produce a particular Q after a tax t per unit is imposed, suppliers will now require P + t in order to produce that  particular Q after receiving { + t from the customer, the firm will pay t to the government and end up with P  (like before) this keeps the firm producing on its originally intended S-curve after accounting for the tax the “effective” S-curve shifts up by the amount of the tax, but the “true” S-curve remains 
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Unformatted text preview: unaffected ● analogous if consumers instead taxed: then the “effective” D-curve shifts down by the amount of the tax, but the “true” D-curve remains unaffected ● the tax leads to an upward-shift in the effective S-curve ● at Q1, producers now require a higher price than what consumers are willing to pa ● firms will accept a lower price only at a lower Q; consumers will pay a higher price only at a lower Q ○ production scaled back to Q2. ● Po ends up higher while Ps ends up lower than (hurts both firms and consumers) ○ note that S more elastic than D: firms suffer less change in P than consumers ● The incidence of a tax is independent of whether the tax is levied on consumers or producers...
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This note was uploaded on 09/23/2009 for the course ECON 101 taught by Professor Brentkreider during the Fall '07 term at Iowa State.

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