Econ_100_Ch7Part2

Econ_100_Ch7Part2 - ECON 100: Introduction to Microeconomic...

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Slide 1 of 50 ECON 100: Introduction to Microeconomic Theory Lecture 9 Yilan Xu
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Slide 2 of 50 Taxes Governments often use taxes to raise revenue to fund various projects. A Commodity Tax is a tax placed on goods. Some truths about commodity taxation: 1. Who pays the tax does not depend on who writes the check to the government; 2. Who pays the tax does depend on the relative elasticities of demand and supply; 3. Commodity taxation raises revenue and creates lost gains from trade (deadweight loss).
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Slide 3 of 50 Taxes 1. Who pays the tax does not depend on who writes the check to the government. The government can collect a commodity tax in either of two different ways: A tax on sellers for every unit supplied; A tax on buyers for every unit purchased. Who must legislatively pay the tax is irrelevant. Commodity taxes have exactly the same effect whether sellers or buyers pay for the tax.
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Slide 4 of 50 A Tax on Sellers A tax on sellers is equivalent to an increase in costs. Such a tax will shift the supply curve up by the amount of the tax. The tax will distort the market so that the price paid by buyers will be different than the price received by sellers. This difference will always equal the tax. Tax = Price Paid by Buyers – Price Received by Sellers
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Slide 5 of 50 A Tax on Sellers A Tax on Sellers Shifts the Supply Curve Up by the Tax Quantity Price Demand Supply No Tax Q no tax Price (No Tax) a Supply With Tax tax tax Q with tax Price Paid by Buyers Price Received by Sellers b c
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Slide 6 of 50 A Tax on Buyers A tax on buyers lowers the willingness to pay for every quantity demanded. Such a tax will shift the demand curve down by the amount of the tax. The tax will distort the market so that the price paid by buyers will be different than the price received by sellers. This difference will always equal the tax. Tax = Price Paid by Buyers – Price Received by Sellers
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Slide 7 of 50 A Tax on Buyers A Tax on Buyers Shifts the Demand Curve Down by the Tax Quantity Price Demand No Tax Supply Q no tax Price (No Tax) a tax tax Q with tax Price Paid by Buyers Price Received by Sellers b Demand With Tax d e
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A Tax on Sellers Equals a Tax on Buyers A Tax on Sellers is the Same as a Tax on Buyers Quantity Price Demand No Tax Supply No Tax
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This note was uploaded on 02/17/2012 for the course ECON 0100 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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Econ_100_Ch7Part2 - ECON 100: Introduction to Microeconomic...

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