ECON111 Lecture Notes - Lecture 6: Production Quota, Coase Theorem, Marginal Cost

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taupemole7

11 May 2018

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Government Actions

Taxes

From the diagrams above, it is clear that the tax incidence is the same regardless of whether the law

imposes the tax on sellers of buyers. Instead, tax incidence is dependent on the elasticities of

demand and supply.

The ore ielasti the dead, the larger is the uers’ tax share, and the more elastic the demand,

the larger the sellers tax share. Consider perfectly inelastic, and perfectly elastic demand.

The ore ielasti the suppl, the larger the seller’s share of the tax, and the more elastic the

supply, the larger the buyers tax share. Consider perfectly inelastic, and perfectly elastic supply.

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Document Summary

From the diagrams above, it is clear that the tax incidence is the same regardless of whether the law imposes the tax on sellers of buyers. Instead, tax incidence is dependent on the elasticities of demand and supply. The (cid:373)ore i(cid:374)elasti(cid:272) the de(cid:373)a(cid:374)d, the larger is the (cid:271)u(cid:455)ers" tax share, and the more elastic the demand, the larger the sellers tax share. The (cid:373)ore i(cid:374)elasti(cid:272) the suppl(cid:455), the larger the seller"s share of the tax, and the more elastic the supply, the larger the buyers tax share. Except in the extreme cases of perfectly inelastic demand or perfectly inelastic supply when the quantity remains the same, imposing a tax creates inefficiency. At the market equilibrium with no tax, social benefit equals marginal social cost and the market is efficient. Total surplus (the sum of consumer surplus and producer surplus) is maximised.

Related Questions

25. Now suppose that the government alters its policy so that the $30 per unit tax is now placed on the sellers of widgets instead of on the buyers. Economic theory tells us the following: A) the buyers' share and the sellers share are reversed by the change in policy B) the buyers' share and the sellers' share are not affected by the change in policy C) the shares are affected by the change in policy, but exactly how depends on the elasticities D) the shares are affected by the change in policy, but exactly how depends on excess demand E) the shares are affected by the change in policy, but exactly how depends on excess supply F) the shares are affected by the change in policy, but exactly how depends on utility G) none of the above

22. Now suppose that the government alters its policy so that the $24 per unit tax is now placed on the sellers of widgets instead of on the buyers. Economic theory tells us the following: A) the buyers' share and the sellers' share are reversed by the change in policy By the buyers' share and the sellers' share are not affected by the change in policy Cythe shares are affected by the change in policy, but exactly how depends on the elasticities D) the shares are affected by the change in policy, but exactly how depends on excess demand E) the shares are affected by the change in policy, but exactly how depends on excess supply F) the shares are affected by the change in policy, but exactly how depends on utility G) none of the above

13. One of the limitations of Five Forces is that:

a. These tools reduce producer surplus

b. For one firm to increase profit, it takes it from other participants in the industry

c. Does not provide a firm with sustainable competitve advantage

d. both b & c.

15. All these are characterisctics of a monopoly except,

a. There is one seller of the product

b. Has few substitutes

c. Controls a large share of the market

d. Controls a small share of the market

22. Industries with high barriers to entry

a. Pushes profits to normal returns

b. increases the likelihood of firms entering the industry

c. help firms sustain profits

d. increases the number of competitors

14. How does Ebay differ from an economist's view of a perfect competitve market?

a. Ebay has few buyers whereas perfect competitve industry assumes many buyers

b. Ebay has few sellers whereas perfect competitve industry assumes many sellers

c. There is limited information in ebay whereas perfect competitive industry assumes full information for both buyers and sellers

d. There is no difference between these two markets

26. Low cost strategies are usually found in industries where

a. Products are not particularly differentiated

b. Price competion tends to be fierce

c. Both a and b

d. None of the above

Cigarettes - Price Elasticity of demand = - 0.67

A. Cigarettes

B. Alcohol

C. Sodas

D. None of the above

2. The demand for insulin will be ______________ than the demand for a Caribbean cruise in general

a. More elastic

b. More inelastic

c. Less elastic

d. Less inelastic

ECON111 Lecture Notes - Lecture 6: Production Quota, Coase Theorem, Marginal Cost

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