5_Government_Policies_STU [Autosaved]

5_Government_Policies_STU [Autosaved] - USING DEMAND AND...

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Unformatted text preview: USING DEMAND AND SUPPLY Government Policies 1 “Ecuador imposes food price controls”; Associated Press, Jan 29, 2008 OVERVIEW / Questions of the Day What happens when the government interferes with the workings of our typical market? 1. Taxes – used to generate revenue for the government h How will the market react? How will buyers and sellers respond? Who actually pays? h How much can the government expect to collect? 1. Price Controls – used to “help” one side of the market h How will the market react? How will the buyers and sellers respond? Who is helped and how much will they gain? Who is hurt and how much will they lose? 2 EXCISE TAXES Per-unit taxes on the sale of goods and/or services Can be levied on the buyers or the sellers h this is the side that actually “hands over” the money to the government However, both sides actually pay for the tax – both sides split the cost (How?) The government cannot control how the buyers and sellers actually split the tax between themselves Tax Incidence – how the tax burden is shared between the two sides of the market 3 Selected State Excise Taxes (rank) State Cigarette Tax (cents per pack) Beer Tax (cents per gallon) Gasoline Tax (cents per gallon) New Jersey 275.5 ( 1 st ) 12 ( 38 th ) 10.5 ( 46 th ) South Carolina 7 ( 50 th ) 77 ( 3 rd ) 16 ( 41 st ) Alaska 180 ( 7 th ) 107 ( 1 st ) 8 ( 47 th ) Wyoming 60 ( 32 nd ) 2 ( 50 th ) 13 ( 46 th ) Washington 202.5 ( 3 rd ) 26.1 ( 20 th ) 34 ( 1 st ) Florida 33.9 ( 45 th ) 48 ( 7 th ) 4 ( 50 th ) Tennessee 62 ( 31 st ) 14 ( 37 th ) 20 ( 25 th ) Kentucky 30 ( 47 th ) 8 ( 46 th ) 18.3 ( 33 rd ) National Average 98.5 26 20 Source: Federation of Tax Administrators 4 Excise Taxes (cont) Consider a simplified version of excise taxes The government has a jar at the counter for tax revenue If a tax is levied on the buyers S Buyers If a tax is levied on the sellers S Sellers The government comes by and collects the jar every week 5 P 30 15 5 300 Q (CD’s per day) S D Market for CD’s, before any tax P* Q* 6 Tax on Buyers...
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This note was uploaded on 10/22/2010 for the course ECON 201 taught by Professor Baker during the Spring '07 term at University of Tennessee.

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5_Government_Policies_STU [Autosaved] - USING DEMAND AND...

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