ECON 20A Lecture Notes - Lecture 5: Ice Cream Cone, Deadweight Loss, Tax Incidence
Document Summary
Tax incidence - how the burden of a tax is distributed among the various people who make up the economy. sh. 50 tax on sellers for each ice cream cone sold. Shifts supply curve to the left because it raises the cost of producing and selling ice-cream. Reduces the quantity supplied at every price. The amount sellers get to keep after paying the tax is sh. 50 lower. Sellers will supply a quantity of ice cream as if the price were sh. 50 lower than it is. To induce sellers to supply any given quantity, the market price must now be sh. 50 higher to compensate for the effect of tax. Although sellers send the entire tax to the government, buyers and sellers share the burden. Buyers pay $. 30 more for each ice cream cone than they did without the tax. Thus the tax makes buyers worse off.
