ECO101H1 Lecture Notes - Utility, Sales Tax, Budget Constraint

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18 Oct 2013
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ECO101H1 Full Course Notes
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ECO101H1 Full Course Notes
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Tax levied on seller: seller sends tax to government. Observations: sales tax is usually levied on seller. Incidence of tax does not depend upon whether tax is levied on buyer or seller. Refer to case #2: sales tax levied on buyers from lecture 8. Dd shifts vertically downward by if tax is levied on buyers. Price paid by buyer: 95 + 10 = 105. When tax levied on seller, buyer pays market price (and seller receives market price less tax) When tax levied on buyer, buyer pays market price plus tax (and seller receives market price) Demand elasticities and the incidence of a tax. Buyer pays: p1 = p0 + 10 (full incidence) Seller receives: p1 - 10 = (p0 +10) - 10 = p0 (no change) Seller receives: p1 - 10 = p0 - 10 (full incidence) Perfectly inelastic dd: buyers completely unresponsive to changes in price, full burden (incidence) of tax is borne by buyers.

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