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251Ch6lecture3 - c • Price seller receives = P s – P c...

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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 c
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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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