ECON101 Lecture 5: Module 5. Social Welfare (3)

59 views2 pages

browncrocodile545

8 Oct 2018

School

University of Waterloo

Department

Economics

Course

ECON101

Professor

Corey Van De Waal

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

purplechimpanzee495 and 51 others unlocked

ECON101 Full Course Notes

Verified Note

79 documents

Document Summary

Income taxes and the social security taxes are deducted from your pay, and hst (or gst) is added to the price of the things you buy. Tax incidence: the division of the burden of a tax between buyers and sellers. Effects of a tax of per package: ex) with no tax, the equilibrium price is per package. A tax on buyers: the market price received by sellers falls, the quantity bought decreases, buyers may more, and sellers receive less the same result as when the tax was levied on supplies. The division of the tax between buyers and sellers depends on the elasticities of demand and supply. Two extreme cases: perfectly inelastic demand: buyers pay the entire tax, perfectly elastic demand: sellers pay the entire tax. *the (cid:373)ore i(cid:374)elasti(cid:272) the de(cid:373)a(cid:374)d, the larger is the (cid:271)uyers" share of the tax.

Related Questions

7. Effect of a tax on buyers and sellers

The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive.

Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.

Quantity(bottles of wine) Price buyers pay(Dollars per bottle) Price sellers receive(Dollars per bottle)

Before tax

After tax

Using the data entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. enter your results in the following table.

Tax burden(Dollars per bottle) Elasticity

Buyers

Sellers

The burden of the tax falls more heavily on the ..........elastic side of the market.

champagnehippopotamus285

Label each of the following statements about the economics of taxes as true or false.

A) The incidence of a tax is determined by which group (buyers or sellers)
must actually pay the government.

B) When demand is inelastic and supply is elastic, the burden of a tax falls
mainly on producers.

C) When demand is elastic and supply is inelastic, the burden of a tax falls
mainly on consumers.

D) An excise tax can distort incentives and create missed opportunities for
mutually beneficial transactions.

champagnefly512

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

ECON101 Lecture 5: Module 5. Social Welfare (3)

ECON101 Full Course Notes

Document Summary

Get access

Related Documents

ECON101 Lecture Notes - Lecture 6: Price Ceiling, Tax Incidence, Price Floor

ECON101 Lecture Notes - Lecture 8: Deadweight Loss, Economic Surplus, Demand Curve

ECON101 Chapter Notes - Chapter 6: Deadweight Loss, Tax Incidence, Avoidance Speech

Related Questions