Taxation - Taxation Lecture 1 Taxes govt. levies taxes on...

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Unformatted text preview: Taxation Lecture 1 Taxes govt. levies taxes on goods and services to raise revenue for national defense, public schools, social security The tax can be imposed on the buyers or sellers For our purposes, we will consider per- unit taxes only SUPPLY, DEMAND, AND GOVERNMENT POLI CI ES 3 S 1 EXAMPLE 3: The Market for Pizza Eqm w/o tax P Q D 1 $10.00 500 SUPPLY, DEMAND, AND GOVERNMENT POLI CI ES 4 S 1 A Tax on Sellers P Q D $10.00 500 S 2 Effects of a $1.50 per unit tax on sellers The tax effectively raises sellers costs by $1.50 per pizza. Sellers will supply 500 pizzas only if P rises to $11.50, to compensate for this cost increase. $11.50 Hence, a tax on sellers shifts the S curve up by the amount of the tax. Ta x SUPPLY, DEMAND, AND GOVERNMENT POLI CI ES 5 S 1 A Tax on Sellers P Q D 1 $10.00 500 S 2 450 $11.00 P B = $9.50 P S = Ta x Effects of a $1.50 per unit tax on sellers New eqm: Q = 450 Buyers pay P B = $11.00 Sellers receive P S = $9.50 Difference between them = $1.50 = tax SUPPLY, DEMAND, AND...
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This note was uploaded on 06/03/2011 for the course ECON 224 taught by Professor Ozturk during the Fall '09 term at South Carolina.

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Taxation - Taxation Lecture 1 Taxes govt. levies taxes on...

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