Lec05 - Tax u u Sin tax u discourage consumption u boost...

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1 Tax Revenue Supplier Revenue Quantity Price (per unit) S t S´(+Tax) Consumer Expenditure Tax D P E Q E E Q E ´ P d ´ P s ´ u Supply curve shifts up by the amount of the tax u p d ; p s u tax (per unit) = p d - p s u expenditure = p d • Q u supplier revenue = p s • Q u difference is government tax revenue u tax revenue larger if demand less sensitive to price u Sin tax u discourage consumption u boost government revenue Quantity Price (per unit) S S´(+Tax) D E Q E P E Q E ´ P s ´ P d ´ Supplier Revenue Consumer Expenditure Tax Revenue Tax u Supply curve shifts up by the amount of the tax u tax revenue larger if demand less sensitive to price u Sin tax u u boost government revenue u p d ; u tax (per unit) = p d - p s u expenditure = p d • Q u supplier revenue = p s • Q u difference is government tax revenue p s Prohibition u law prohibiting trade of a good u simple idea: illegal, so no sale or use? Quantity Price (per unit) S D E u prohibition supply shift since cost of production increases D P D Q u undesirable side-effects u crime u Canadian government launched attack on smoking, increasing
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This note was uploaded on 10/10/2009 for the course ECON 101 taught by Professor Gerson during the Winter '08 term at University of Michigan.

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Lec05 - Tax u u Sin tax u discourage consumption u boost...

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