Rec 5 - For Tax incidence we are interested in: Finding new...

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March 4, 2009 Econ Rec #5 Determine consumer surplus (you need to know the price level, otherwise assume equilibrium) Price Floor: If wasted resources, box will be a DWL If no wasted resources, the box will be producer surplus Price Ceiling If wasted resources, area of the box will be DWL If no wasted resources, box will be consumer surplus Tax incidence depends on elasticity Assume tax is going to supply if nothing is said
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Unformatted text preview: For Tax incidence we are interested in: Finding new market equilibrium quantity (Where D meets S*) New seller price (what sellers receive) (plug Q* into old S) New buyers price Inelastic Demand: The entire tax falls on the consumer Elastic Demand The entire tax falls on the producer Government Revenue: P*Q = Tax*Equilibrium Quantity...
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