MGEA02H3 Lecture Notes - Lecture 4: Tax Wedge, Demand Curve, Tax Incidence

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MGEA02H3 Full Course Notes
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MGEA02H3 Full Course Notes
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Taxation and elasticity, economic incidence of a tax, In general, the answer to this question (surprisingly) is no. To economists, the term tax incidence refers to how much of a tax, in true economic terms, is paid by different economic groups (i. e. , who bears the burden of the tax?). Economists believe the economic incidence of the tax is independent of the statutory incidence of the tax (statutory incidence means which group is required by law to provide the tax money to the government ). The effect of the tax is to raise the supply curve everywhere exactly by x dollars, as shown in the diagram below. To see this, suppose you are given the following supply curve. Now, if the government imposes a tax of . 00 on each unit sold, to be paid by the sellers to the government, the supply curve must become:

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