EC 2-16-2011 - Tax alcohol and gas to reduce its...

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EC 2-16-2011 15:20 Taxing Suppliers or Demanders ends up with the same result. In exam cross out text after “suppose we tax………….” Tax Incidence:  A measure of who pays the tax Idea:  how much does the price paid/price received change with the  imposition of a tax? Answer depends on the price elasticity of demand (PED) and the PES The lower the PED, the more incidence falls on demanders Sin Taxes Can we use this possibility of reducing quantity transacted to benefit society?
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Unformatted text preview: Tax alcohol and gas to reduce its consumption Obesity taxes??? (Soda) Implication: At some tax rates, reducing taxes will increases tax revenue. Total Surplus: CS + PS + GR (Consumer Surplus, Producer Surplus, Govt Revenue) Taxes cause deadweight loss o Taxes move us from the competitive equilibrium quantity. Taxes cause inefficiencies o Total surplus declines with taxes 15:20 15:20...
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EC 2-16-2011 - Tax alcohol and gas to reduce its...

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