taxes__subsidies_and_elasticity

taxes__subsidies_and_elasticity - Government Interventions...

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Government Interventions Taxes and Subsidies Elasticity
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Tax Analysis Taxes fall on transactions Gas tax, property tax, income tax, estate tax Look in the relevant market Gas, home improvement, labor, savings Start with an equilibrium Shift the supply or demand Which side must pay the tax to the gov’t? Find the new equilibrium and compare Quantity, DWB, demander’s and supplier’s share
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Gasoline Tax 34 cents per gallon, paid by station owners; i.e. shift supply
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Shared Incidence Demander’s share = new price – old price Amount passed forward to buyers Supplier’s share = Tax - (new price – old price) = Tax – (demander’s share) Tax less amount passed forward to buyers $1.95 - $1.70 $ .25 $. 34 - $ .25 = $ .09
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Federal Gas Tax Increase (61 cents)
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When supply shifts, how much is the Quantity change? Price change?
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taxes__subsidies_and_elasticity - Government Interventions...

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