EC 201 Lecture Notes - Lecture 8: Tax Incidence, Overproduction, Externality
Document Summary
Economics 201 lecture 8 elasticity continued; taxes. Markets for illegal goods: the us government prohibits trade of some goods, such as illegal drugs, yet, markets exist for illegal goods and services. In competitive markets, underproduction or overproduction arise when there are: price and quantity regulations, taxes and subsidies, externalities, public goods and common resources, monopoly, high transaction costs. What is a tax: a tax is a wedge between the price a consumer pays and the price the producer receives, to find equilibrium under tax, find quantity where distance between demand and supply equals the tax. If the price rises by the full amount of the tax, buyers pay the tax. If the price rises by a lesser amount than the tax, buyers and sellers share the burden of the tax. If the price doesn"t rise at all, sellers pay the tax.
