GMS 402 Lecture Notes - Lecture 3: Ad Valorem Tax, Excise, Price Ceiling
25 Sep 2018
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Increase in ad valorem tax shifts the supply curve counter-clockwise. The supply function: qx = quantity supplied of good x, px = price of x, pr = price of a substitute product, w = price of inputs (e. g. wages, h = other variables. Inverse supply function: price as a function of quantity supplied. Producer surplus: the amount producers receive in excess of the amount of necessary to induce them to produce the good, the higher the price, the higher the producer surplus. Market equilibrium: the price that balances supply and demand, where quantity supplied equals quantity demanded, no shortage or surplus, steady-state. If price is too low, there is a shortage of quantity supplied. If price is too high, there is a surplus of quantity supplied. Comparative statics analysis: the study of the movement from one equilibrium to another, competitive markets, operating free of price restraints will be analyzed when demand changes, supply changes, or demand and supply simultaneously change.
