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the_incidence_of_a_sales_tax

the_incidence_of_a_sales_tax - W e u se th e sam e m eth o...

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dP W e use the sam e m ethod as w e did to evaluate above. dM Begin w ith the no-tax equilibrium : ( ) ( ) N ow a specific tax, per unit, paid by the suppliers to the tax authorities, drives a w edge betw een t D P S P = τ D D he dem and price and the supply price: w here P is the m arket price paid by consum ers. So in the new equilibrium ; ( ) ( ) w hich, of course m akes the new m arket price P an im plicit function o D S D D P P D P S P −τ= = −τ f . So: [ ( )] [ ( ) ] D ifferentiating w ith respect to (using the chain rule): ( 1) P m ultiplying the num erator and denom inator of the rhs by D D S d D D S S S D S D D P S P dP dP dP dD dS dS dP d dP d dP d dS dP dP dS dD
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