ECN 150 Taxes & Subsidies

commodity tax

taxes on goods like fuel, cigarettes, and liquor

tax incidence

the division of the burden of a tax between buyers and sellers

if demand is more elastic, who pays less tax?

buyers pay less

if supply is more elastic, who pays less taxes?

sellers pay less

taxes on sellers

supply curve shifts up (decreases) by size of tax

taxes on buyers

demand curve shifts down (decreases) by size of tax

the presence of a tax

buyers pay more and sellers receive less

elasticity

changing behavior a lot when tax is implemented

inelasticity

not changing behavior when tax is implemented

deadweight loss

the value of lost trades that don’t happen because of tax

deadweight loss with elastic demand

tax deters many trades and there is a large deadweight loss

deadweight loss with inelastic demand

not a lot of tax deterrence and small deadweight loss

deadweight loss and elastic supply

tax deters many trades and large deadweight loss (supply)

deadweight loss and inelastic supply

not a lot of tax deterrence and small deadweight loss (supply)