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# L10 - Announcements Exam Announcements Reading for today...

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10/12/2011 1 Announcements Reading for today text Chapter 9 pp 361 366 analysis of taxes, effects on CS & PS, incidence Reading for next Wednesday text Chapter 9 pp 367 387 price controls and prohibition Homework Assignment 5 will be posted today Exam Announcements Scores will be posted to the Gradebook section of CTools when they are available A class distribution of scores will be posted to the class website Question books will be handed back in section Exam 1 Answer Key is posted to the class website The Market The market does many things Pricing Quantity Allocation Efficient rationing Incentives We explore what happens when the market is restricted Quantity Price (per unit) S D Q E P E E Do market forces operate so that price and quantity move towards the equilibrium? YES! (\$ per unit) Tax Specific (quantity) tax – tax per unit Different from a sales tax We denote the price demanders pay: P d price suppliers get: P s Before tax: P = P d = P s After tax: P d = P s + t We’ll draw the new supply curve in terms of P d Purpose of taxes is to… Ameliorate the inefficiencies due to externalities Modifying behavior (reducing sinful behavior) Collect revenue for the government tax Tax Revenue Supplier Revenue Quantity Price (\$/unit) S t S´(+Tax) Consumer Expenditure Tax - Beer D P E Q E E Q E ´ P d ´ P s ´ Supply curve shifts up by the amount of the tax p d ; p s tax (per unit) = p d - p s expenditure = p d • Q supplier revenue = p s • Q difference is government tax revenue tax revenue larger if demand less sensitive to price Sin tax discourage consumption boost government revenue S´(+Tax) P D ´ Tax 37

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L10 - Announcements Exam Announcements Reading for today...

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