Class Notes (836,655)
Canada (509,870)
Economics (1,590)
ECO101H1 (575)
Lecture

ECO100 - OCT 10

5 Pages
68 Views
Unlock Document

Department
Economics
Course
ECO101H1
Professor
James Pesando
Semester
Fall

Description
Oct 19 11am EX200 Include consumer demand theory final topic, assign 4 ● Sales tax is usually levied on seller ● Incidence of tax does not depend upon whether tax is levied on buyer or seller Case #2: Sales Tax Levied on Buyers ● No Tax Buyers Pay $ 10 Tax P QD QS P QD' QS 120 1 9 120 9 115 2 8 115 8 110 3 7 110 1 7 105 4 6 105 2 6 100 5 5 100 3 5 95 6 4 95 4 4 90 7 3 90 5 3 85 8 2 85 6 2 80 9 1 80 7 1 P = 100 P = 95 Q = 5 Q = 4 Price paid by buyer: Price paid by buyer: 100 105 (P + 10) Price received by seller: Price received by seller: 100 95 ● The demand curve shifts vertically downwards by the amount of the tax. ● Price paid by buyer 95+10 = 105 ● Price received by seller = 95 Tax Incdence and Elasticities of Demand and Supply ● 1) Extreme cases ● 2) tax levied on sellers (since incidence is the same when levied on buyer or seller) Demand Elasticities and the Incidence of a tax ● $10 Text to be paid by seller, perfectly inelastic demand. ● Buyers pays: P1 = Po + 10 (full incidence) ● Seller receive: P1 - 10 = (P0 +10) - 10 = Po (No change) ● Intuition: ○ Perfectly inelastic DD: ■ 1) Buyers are completely unresponsive to changes in price ■ 2) Full burden (incidence) of tax is borne by buyers ● Perfectly elastic demand ● Buyers pays: P1= P0 (no change) ● Seller receives: P1-10 = P0-10 (full incidence) ● Intuition: ○ Perfectly elastic DD: ■ 1) Buyers very responsive to change in price (quantity demanded falls to zero for any increase in price) ■ 2) Full burden (incidence) of tax is borne by sellers ● Student exercise: What is incidence (burden) of sales tax if: ○ 1) SS is perfectly inelastic ○ 2) SS is perfectly elastic ● OBSERVATION: In Ontario, where sellers collect the sales tax, store issue a receipt that shows the price the customer paid, plus the sales tax. ○ REMEMBER 1) the price shown on the receipt is the price received by the seller ○ 2) The addition of the sales tax does
More Less

Related notes for ECO101H1

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit