ECON 1000 Lecture Notes - Lecture 8: Market Failure, Tax Incidence, Demand Curve

38 views2 pages

yellowbear141

27 Feb 2016

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Tax incidence: the manner in which the burden of a tax is shared among participants in a market how taxes on buyers affect the market outcome. For analyzing supply and demand: we decide whether the law affects the supply curve or demand curve, we decide which way the curve shifts, we examine how the shift affects the equilibrium. When a good is taxed, the quantity of the good sold is smaller in the new equilibrium. Buyers and sellers share the burden of taxes. In the new equilibrium, buyers pay more for the good, and sellers receive less. When supply is more elastic than demand the incidence of the tax falls more heavily on consumers than on producers. When demand is more elastic than supply the incidence of the tax falls more heavily on producers than on consumers. Except when there is a market failure interfering in markets with controlled prices and taxes can make things worse.

Related Questions

5. If the government decides to levy a small excise tax on the buyers la perfectly competitive market in which the demand is perfectly elastic and supply curve is positively sloped, then we can conclude that: (A) The buyers will bear all of the tax, and there will be some excess burden. (B) The sellers will bear all of the tax, and there will be some excess burden. TC) The tax burden will be shared. The buyers will bear more of the tax than sellers, and there will be some excess burden. (D) The tax burden will be shared. The sellers will bear more of the tax than buyers, and there will be some excess burden. (E) The buyers will bear all of the tax, and there will be no excess burden. (F) The sellers will bear all of the tax, and there will be no excess burden. (G) The tax burden will be shared. The buyers will bear more of the tax than sellers, and there will be no excess burden. (H) The tax burden will be shared. The sellers will bear more of the tax than buyers, and there will be no excess burden. (1) The buyers will bear all of the tax, and they will also bear the excess burden. (J) none of the above

Please explain/prove your answers. Are the following statements true or false?

A. A tax on a market with elastic demand and elastic supply will shrink the market more than a tax on a market with inelastic demand and inelastic supply will shrink the market.

B. If the government places a $2 tax in the market, the seller bears $2 of the tax burden.

C. Buyers and sellers rarely share the burden of a tax equally.

D. When a tax of $1.00 per gallon is imposed on sellers of gasoline, the supply curve for gasoline shifts upward, but by less than $1.00.

E. If the equilibrium wage is $4 per hour and the minimum wage is $5.15 per hour, then a shortage of labor will exist.

jadeeel186

2. If the government decides to levy a small excise tax on the buyers in a perfectly competitive market in which the elasticity of demand is greater than the elasticity of supply, then we can conclude that: (A) The buyers will bear all of the tax (B) The sellers will bear all of the tax (C) The buyers will bear more of the tax than sellers ((D) The sellers will bear more of the tax than buyers YE) The government will bear most of the tax (F) It is not possible to tell who will bear most of the tax without additional information (G) The tax will be shared equally between the buyers and the sellers (H) There will be a smaller amount of excess burden than there would have been if the elasticity of supply is greater than the elasticity of demand (I) all of the above (J) none of the above

ECON 1000 Lecture Notes - Lecture 8: Market Failure, Tax Incidence, Demand Curve

Document Summary

Get access

Related Documents

ECON 1000 Chapter Notes - Chapter 6: Price Ceiling, Price Floor, Tax Incidence

ECON 1000 Chapter 6: Chapter 6

ECON 1000 Lecture Notes - Lecture 3: Price Ceiling, Price Floor, Economic Equilibrium

Related Questions