ECON 101 2Midtermreview

We call this decrease in marginal utility as the

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Unformatted text preview: the full amount of the tax, buyers pay the tax. Ø། If the price rise by a lesser amount than the tax, buyers and sellers share the burden of the tax. Ø། If the price doesn’t rise at all, sellers pay the tax. Tax incidence doesn’t depend on tax law! Ø། The law might impose a tax on buyers or sellers, but the outcome will be the same. Ø། To see why, we look at the tax on cigarettes in Ontario. Ø། On February 1, 2006, Ontario raised the tax on the sales of cigarettes to $3.90 a pack of 25 cigarettes. Ø། What are the effects of this tax? A Tax on Sellers Figure 6.5 shows the effects of this tax. Ø། With no tax, the equilibrium price is $3.00 a pack. Ø། A tax on sellers of $1.50 a pack is introduced. Ø...
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