quinnipiac micro hubbard chap 4 part 2

quinnipiac micro hubbard chap 4 part 2 - for producers 6....

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Chapter 4 (continued) Fig. 4-10: Impact of Taxes: (Generalization: Whenever a government taxes a good or service, less of that good or service will be produced (sold)) 1. Point “A” – Without a tax : Equilibrium Price = $4.00 ; Equilibrium Quantity = 4 billion packs 2. Federal Government imposes a $1.00 tax per pack 3. This causes the supply curve to shift (up) left, reducing sales to 3.7 billion packs at a price of $4.90 (B) (4. Before the tax, suppliers could have sold 3.7 billion packs for $3.90 (C)) 5. Viewing this change from the original equilibrium price of $4.00, the price per pack for smokers rose by $.90 5. “ Tax Incidence” : The actual division of the burden of a tax between buyers & sellers in a market. In this example, it’s $.90 for consumers; $.10
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Unformatted text preview: for producers 6. The green-shaded area represents governments tax revenue, eliminating any producer & consumer surplus: $4.90 3.90 = $1.00 x 3.7 Bil. packs = $3.7 Bil. 7. (Yellow-shaded area) Some deadweight loss occurs also because at $4.00 per pack, without a tax, 4 billion packs could have been sold 8. (Buyers) Consumer surplus experiences the greatest amount of deadweight loss because they are experiencing the most of burden of the tax ($.90) while sellers experience loss of some sales, from 4 billion packs to 3.7billion Fig 4-11: Similar result with a $.10 per gallon gasoline tax; $.08 paid by consumers, $.02 by suppliers...
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This note was uploaded on 02/06/2012 for the course ECON 111 taught by Professor Risnit during the Spring '11 term at SUNY Suffolk.

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quinnipiac micro hubbard chap 4 part 2 - for producers 6....

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