251Ch6lecture3 - c Price seller receives = P s P c = P s +...

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9/19/2011 1 1 Chapter 6: Government Actions in Markets Lecture 3: Effect of taxes Taxation • Scott has a 2000 Volvo S80 T6. Min he would take=$8,750 • Aaron would pay, at most, $9,500 • Gov’t imposes a $1,000 tax on sale of used cars. • Tax destroyed a mutually beneficial exchange Example of taxation Taxation • Price consumer pays = P
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Unformatted text preview: c Price seller receives = P s P c = P s + tax P s = P c tax Tax incidence division of the burden of a tax between buyer and seller Impact of Taxes Taxation P Pc=9,500 8,750 Ps=8,500 S=MC D=MB tax Q (thousands) 18 20 S + tax P c rose by $750 P s fell by $250 Sharing burden of tax, but consumers bear more burden...
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This note was uploaded on 09/21/2011 for the course ECON 251 taught by Professor Blanchard during the Spring '08 term at Purdue University-West Lafayette.

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