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Lecture 16

# Lecture 16 - EC101 B1 E1 Manove Lecture 16 Market...

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EC101 B1 & E1 Manove Lecture 16. Market Equilibrium with Taxes Outline p 37 EC101 B1 & E1 Manove Announcements ± You are responsible for understanding two methods for finding the equilibrium with methods for finding the equilibrium with taxes… z the textbook method, and z the method used in class the method used in class. z Figure out why the two are equivalent. ± Your practice midterm will be posted after the lectures The answers will be posted next lectures. The answers will be posted next Tuesday. Outline p 38

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EC101 B1 & E1 Manove Taxes and Market Equilibrium ± The demand curve depends on the demand price. ± The supply curve depends on the supply price. ± Suppose we have a \$2 tax. Market Demand & Supply ± Let P D = equilibrium demand price. S Price \$2 P D ± Let P S = equilibrium supply price. P D P S ± Then P D P S = \$2 ± Let Q T = equilibrium P S D quantity ± How do we find Q T , Q Quantity Taxes>Equilibrium p 39 P D and P S ? T EC101 B1 & E1 Manove Taxes and Surplus ± After Q T , P D and P S are determined Market Demand & Supply S are determined,… ± we see the dead- P D weight loss, ± the taxes collected CS P D Taxes \$2 P the taxes collected, ± the consumer DWL P S surplus D Quantity Q PS ± and the producer surplus. T Taxes>Surplus p 40
EC101 B1 & E1 Manove Tax and No-Tax Comparisons ± As compared with the no-tax price P* , Market Demand & Supply ± we have a higher demand price and lower supply price, ± which pushes the quantity S Price P D which pushes the quantity demanded and supplied below the surplus-maximizing level

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Lecture 16 - EC101 B1 E1 Manove Lecture 16 Market...

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