ECON 1B03 Lecture 14: Sales Tax

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ECON 1B03 Full Course Notes
46
ECON 1B03 Full Course Notes
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Document Summary

Government levy taxes to raise revenue for public projects ex health education. Income tax is the largest source of revenue (but that is macro) Equilibrium price qd=qs = 70 lbs( per pound) Government wants people to cut down on chicken wings, so they impose tax, t, of per pound -- tax does not change based on price of chicken wings. If the firm charges price, pf, the consumer will pay pf+t. The new demand is qd = 100 5(pf+t) --- qd = 90-(5pf) Slope has not changed, the intercept has changed, resulting in parallel shift of demand curve. Before tax, p is p=, after is p= , difference of . General : when a sales tax is levied on consumers the demand curve shifts down by the exact amount of the tax. To find the new equilibrium price and quantity, set after tax demand to equal supply curve.

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