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Introduction to Microeconomics - ECO 1104 - Part 3

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University of Ottawa
Serge Nadeau

ECO1104 Introduction to MicroeconomicsExample MKMR pg 139 Q2The government has decided that the freemarket price of cheese is too lowPsuppose the government imposes a abinding price oor in the cheese market S1Use a supplyanddemand diagram to show the effect of this policy on the price Surplusof cheese and the quantity of cheese Psold Is there a shortage or surplus of FloorPcheese1Price up quantity downsurplusDFarmers complain that the price oor has breduced their total revenue Is this possible ExplainTRTR since P QAfterBeforeFloorSoldPQdemand curve is elastic11 QQQSoldQ1SuppliedIn response to farmers complaints the cgovernment agrees to purchase all of the surplus cheese at the price oor Compared to the price oor who benets from this new policy Who loses Farmers as TR goes up from PQto P QWho benets11 FloorSuppliedWho loses Tax payers because taxes go up and consumers because prices go up ECO1104 Introduction to MicroeconomicsOctober 13 2011Lecture 11Chapter 6 Taxation Some Basic PrinciplesTaxes results in a change in market equilibriumprices typically go up and quantities sold go downBuyers and sellers share the tax burden regardless on whom the tax is leviedThe burdenincidence of a tax falls more heavily on the side of the market that is less elasticEffects of a Tax Levied on BuyersSuppose government imposes a tax on The market for buyers of 30 per room Find newprice sellers Q price that buyers pay ie PBreceive ie P and incident tax ie how is SBuyers will pay 30 more dollars for the tax shared between buyers and sellerseach room sold so they will want to pay 30 fewer dollars before taxOld P100PB Old Q100TaxWhat curve is affected Demand curveIn what direction DownPS Q80NewP80NewSPNew PTaxNew BS110 8030D1IncidenceBuyers11010010Sellers1008020Incidence of tax difference between price paid received after tax imposed and the price paid received before tax was imposed
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