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ECON-UA 2 (18)
Chapter 3

Microeconomics II Chapter 3

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New York University

Microeconomics 200 - Tuesday, July 23rd notes Excise Tax - The government collects a set amount from the buyer or seller for every good traded. * 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) Now let’s add the supply curve and see what happens: 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: As seen, the subsidy increa
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