ECON 1010 Chapter Notes - Chapter 3: Deadweight Loss, Marginal Revenue, Economic Equilibrium
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ECON 1010 Full Course Notes
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By comparing the initial equilibrium price and the equilibrium price after tax; the difference between price is sh. 5, which is smaller than the per-unit tax. Hence, the consumers bear only a fraction of the tax burden because they suffer an increase in price that is smaller than the full tax amount. Remaining part of the tax burden must be borne by the producers. Producers have to pay to the government for each unit of the good they sell; hence their marginal revenue is given by the price at which the good is sold, minus the per-unit tax, . Hence difference between marginal revenue before/after tax = sh. 5. This is the share of the tax burden that is borne by the producers. Since both consumers and producers are worse off after imposing tax: government must be making tax revenues. Tax revenue = number of units sold x tax.