Chap 7: Taxes (econ)

tax on buyers

refers to the govt collecting tax directly from buyers

perfectly elastic supply

Sellers don’t take any tax burden → Buyers pay the full tax.

Perfectly elastic demand

Buyers only pay one specific price—no more, no less

tax on sellers

govt collect directly from sellers

excise taxes

taxes placed on specific goods or services rather than general income or sales

ex: gasoline tax(federal)

cigarette tax ( state )

hotel room tax (city)

a tax on buyers shifts the D curve up or down ?

down by the amount of the tax

If the price buyers pay rises, what happens to price sellers get and equilibrium?

The price sellers receive decreases falls

leading to a new equilibrium with fewer transactions. (falls)

incidence

how the burden of a tax is shared among buyers and sellers in the market.

If it's really hot outside, use bottled water as an example.

If demand is inelastic, supply elastic. who bears most of the tax burden?

Demand is inelastic bc If its really hot outside people need water to stay hydrated so they will buy it no matter what

supply is elastic because bottled water is easy to produce so they can just make more if needed

buyers face more of the burden

the tax burden impacts the side of the market that is

less elastic, meaning they are less responsive to price changes (which means its more inelastic)

what happens when supply inelastic, demand elastic

Sellers bear more of tax burden bc in terms of selling tickets there are only a limit available seats so they can not increase the tickets easily no matter how much people are WTP making it inelastic

And if ticket price increases too much, fans will chose not to buy so demand is elastic

The tax burden falls more on sellers, because buyers are sensitive to price increases and will simply walk away.

total surplus =

PS+CS

Tax rate =

(income tax amount / annual income ) * 100

regressive tax

when the tax burden is more on low income, rather than higher

regressive tax

Example

cigarette

sales tax on food and clothing

tariffs- low income suffer tarriff bc their income is spent on it and hurts them unlike rich ppl whom it doesnt bother them.

progressive tax

when rich ppl actually pay taxes

progressive tax examples

income taxes - using tax brackets

an additional sales tax on cars bought for over 50k

proportional

if all individuals spend 10% of their income on gasoline regardless of income.