Ch Taxes and gov intervention

# Ch Taxes and gov intervention - ± Perfectly elastic demand...

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1 Concepts ± Taxes: tax incidence ± Taxes: impact on efficiency ± Subsidies: a negative tax (do this on your own!) Taxes: two issues 1. Tax incidence: the division of the burden of a tax between the buyer and the seller. 2. Dead Wight Loss: a measure of inefficiency. Equals the decrease in the sum of consumer surplus and producer surplus that results from an inefficient level of production.

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2 Taxes: A numerical example Qd=100-10P Qs=15P t=\$5 (per unit). c) What is the tax incidence? d) Calculate DWL Taxes Tax Division and Elasticity of Demand ± Perfectly inelastic demand: the buyer pays the entire tax.
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Unformatted text preview: ± Perfectly elastic demand: the seller pays the entire tax. ± The more inelastic the demand, the larger is the buyers’ share of the tax. 3 Taxes Tax Division and Elasticity of Supply ± Perfectly inelastic supply: the seller pays the entire tax. ± Perfectly elastic supply: the buyer pays the entire tax. ± The more elastic the supply, the larger is the buyers’ share of the tax. Taxes Efficiency and Elasticity of Demand & Supply ± The greater the elasticity of demand and supply the greater the D.W.L. ± Perfectly inelastic supply or Perfectly inelastic demand: no D.W.L....
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Ch Taxes and gov intervention - ± Perfectly elastic demand...

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