ECON 208 Lecture Notes - Lecture 4: Excise, Tax Incidence, Microeconomics

• School: McGill University
• Department: Economics
• Course: ECON 208
• Professor: El- Attar Mayssun

Document Summary

Excise tax: a tax on the sale of a particular commodity. Need to know the relative elasticity of the supply and demand. The burden of an excise tax is independent of who remits the tax to the government, rather it is relative to the elasticities of supply and demand. If the demand is more elastic than the supply, consumers will bear most of the cost. If the supply is more inelastic than the demand, producers will bear the most of the cost. Demand goes down by amount of tax, to accommodate extra costs in wages (payroll taxes) Ny > 0; the good is said to be normal. Ny < 0; the good is said to be inferior. The more necessary an item is in the consumption pattern of consumers, the lower its income elasticity. Income elasticities for any one product also vary with the level of a consumer"s income. Important economic effects of an increase in income examples.