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Lecture 35

ECON 1010 Lecture 35: Lecture 35

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ECON 1010
Laura K.Brown

oS82 1. The effects on price and quantity, and the tax incidence are the same whether the tax is imposed on buyers or sellers 2. A tax drives a wedge between the price of buyers pay and the price sellers receive Elasticity and Tax Incidence: 3. Buyers and sellers of the good share the burden of the tax 4. But how exactly is the tax burden divided? 5. Rarely shared equally 6. Recall: inelastic = not price sensitive, elastic = price sensitive 7. Tax in a market with a very elastic supply and relatively inelastic demand 1. Sellers are very responsive to changes in the price of the good (so the supply curve is relatively flat), whereas buyers are not very responsive (so the demand curve is relatively steep) 1. The price received by sellers does not fall much, so sellers bear only a small burden 2. The price paid by buyers rises substantially, indicating that buyers dear most of the tax burden 8. Tax in a market with relatively inelastic supply and very elas
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