notes 9-27

notes 9-27 - Lecture VII Notes For Sept 27, 2006, #2 Due...

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Lecture VII Notes For Sept 27, 2006, #2 Due Monday I. Short Run Effects of Lowering Gasoline Taxes II. Supply and Demand Analysis of Subsidies IV. Own-price Elasticity of Demand V. Income Elasticity of Demand I. Short Run Effects of Lowering Gasoline Taxes A. Consider short run market equilibrium, supply curve shows that U.S. national supply is virtually fixed in the short run. B. Gasoline tax = $1.00, given shape of U.S. short run demand and supply curves, virtually all of the tax is “paid” by producers. C. Eliminating gasoline tax has little effect on price but raises return to producers significantly. $/gallon S Tax S S 3.00 P* P Gross 2.00 P Net 1.00 D Q’ Q*
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II. Supply and Demand Analysis of Subsidies A. Market equilibrium begins at Q*, P* B. Implement a 25 cent subsidy and supply is based on the gross of subsidy supply curve shifted down by 25 cents. C.
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notes 9-27 - Lecture VII Notes For Sept 27, 2006, #2 Due...

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