Week4ASalesTaxExample

# Week4ASalesTaxExample - (1) LEAVE SUPPLY CURVE AS IS (2)...

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FINDING EQUILIBRIUM WITH SALES TAX IN TERMS OF BUYERS’ PRICE: (1) LEAVE DEMAND CURVE AS IS (2) SHIFT SUPPLY CURVE UP BY AMOUNT T (3) WHERE DEMAND, (NEW) SUPPLY INTERSECT HAVE P D AND Q (4) TO FIND P S , SUBTRACT T FROM P D -- DROP DOWN TO OLD SUPPLY CURVE Q S = Q D 3P S – 9 = 36 – 2P D 3[P D – T] – 9 = 36 – 2P D 5P D = 45 + 3T = 48 IF T = 1 P D = 48/5 = 9.60 P S = P D – T = 9.60 – 1 = 8.60 Q S = 3P S – 9 = 25.8 – 9 = 16.8 Q D = 36 – 2P D = 36 – 19.2 = 16.8 FINDING EQUILIBRIUM WITH SALES TAX IN TERMS OF SELLERS’ PRICE:
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Unformatted text preview: (1) LEAVE SUPPLY CURVE AS IS (2) SHIFT DEMAND CURVE DOWN BY T (3) WHERE (NEW) DEMAND, SUPPLY INTERSECT, HAVE P S AND Q (4) TO FIND P D , ADD T TO P S-- MOVE UP TO OLD DEMAND CURVE Q S = Q D 3P S 9 = 36 2P D 3P S 9 = 36 2[P S + T] 5P S = 45 - 2T = 43 IF T = 1 P S = 43/5 = 8.60 P D = P S + T = 8.60 + 1 = 9.60 Q S = 3P S 9 = 25.8 9 = 16.8 Q D = 36 2P D = 36 19.2 = 16.8...
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## This note was uploaded on 01/21/2011 for the course ECON 252 taught by Professor Robertholand during the Spring '08 term at Purdue University-West Lafayette.

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