Microeconomics 200 - Tuesday, July 23rd notes
Excise Tax - The government collects a set amount from the buyer or seller for every good
* Atax on sellers shifts the supply curve left by the rate of tax
-> Government wants to come in and reduce quantity (let’s say the good is oil - gov’t wants to
reduce transaction of oil b/c it uses up fossil fuels)
* Sellers still willing to supply same quantity, just at a higher price. (as seen below)
Now let’s add the demand curve and see what happens:
* Supply shifts left by the tax amount; sellers willing to supply the same - but since price
increases people will buy less (buyers) - shifts some of the burden to the sellers.
Burden harder on buyers as they pay 40 cents more while sellers get 20 cents less.
Incidence - Determines the burden of a tax: the division of payments between buyers and sellers. Atax on buyers shifts the demand curve to the left
* Buyers are still willing to buy the same quantity, but at a lower price (minus tax)
Same result as when sellers are taxed, burden more on buyers as they pay 40 cents more and
sellers receive 20 cents less.
Note: The vertical distance between the price paid by buyers (including tax) and the money
sellers receive is governmental revenue and the difference of sales tax.
Subsidy: Negative Tax
* Government worried that not enough is being produced, they want to increase quantity produced.
Example: more people to go to college (gov’t subsidized cost of college)
Asubsidy is money the government gives you to do something.
Asubsidy for students attending college:
the subsidy increa