ECON 1116 Lecture 6: Supply, Demand and Government Policies
Document Summary
Econ 1116 lecture # 6- supply, demand and government policies. The government levies taxes on many goods and services to raise revenue to pay for the national defense, public schools etc. The government can make buyers or sellers pay taxes. If there is an increase in taxes by the price of a dollar a unit then the price of the product cannot increase by a dollar from the perspective of the buyer. So the seller spends 1 dollar more and the buyer spends lesser. The consumer does not pay the entire tax. Incidence of tax refers to how the burden of a tax is shared by market participants. Most of the tax has to be born by the seller/producer because it is easier for the buyer/ consumer to leave the market. A larger burden of the tax is born by the consumer in the case where the supply is more elastic than the demand.