U2 M50 Taxes-Efficiency and Deadweight Loss Slides HM (1)
Note on Elasticity and Taxes
Page 1: Graphing Exercise
Graphing Tasks:
A. Unit elastic demand curve
B. Perfectly elastic supply curve
C. Inelastic demand curve
D. Supply curve with elasticity of 1.5
Page 2: Elasticity Review
Do Now Exercise:
Regular method for elasticity calculations is sufficient; midpoint formula is not required.
Page 3-4: Module Overview
Module 50: Taxes:
Link to video resource provided.
Learning Objectives:
Explain the impact of taxes on total surplus.
Understand the concept of deadweight loss.
Page 5-6: Consumer and Producer Surplus
Surplus Definitions:
Consumer Surplus (CS): Difference between what consumers are willing to pay and what they actually pay.
Producer Surplus (PS): Difference between what producers are willing to accept and what they actually receive.
Efficiency: A market is efficient when it maximizes both consumer and producer surplus.
Page 7: Price Controls and Deadweight Loss
Price Controls:
Price ceilings and floors reduce consumer and producer surplus, leading to deadweight loss.
Taxes similarly create inefficiencies in the market.
Page 8-10: Excise Taxes
Definition:
A per-unit tax imposed on producers for each unit sold.
Aimed at reducing production of harmful goods (e.g., cigarettes, alcohol).
Example:
Market for cigarettes with a $2 per unit tax leading to higher prices for consumers and lower net prices for producers.
Page 11-13: Effects of Excise Tax
Tax Impact:
New equilibrium price established post-tax.
Tax revenue calculated based on the difference in prices before and after tax.
Page 14-15: Tax Practice
Calculations:
Identify consumer surplus, producer surplus, tax revenue, and deadweight loss before and after tax.
Page 16-18: AP Exam Questions
Sample Questions:
Determine dollar amount of unit tax and prices paid by consumers and received by producers after tax.
Page 19-21: Tax Incidence
Tax Burden:
Tax incidence depends on elasticity of demand and supply.
Consumers pay more of the tax burden when demand is inelastic.
Page 22: Price Ceilings and Floors
Elasticity Effects:
Binding price ceilings increase shortages; binding price floors increase surpluses.
Market structure influences the impact of price controls.
Page 23-25: Excise Tax Examples
Illustrations:
Examples of excise taxes on milk and beef, showing shifts in supply and demand curves.
Page 26-27: Discussion Practice
Tax Revenue Calculations:
Identify tax per unit, total tax revenue, and spending impacts on consumers and producers.
Page 28: Tax Imposition on Consumers
Example:
A $40 tax on hotel rooms shifts demand, affecting equilibrium price and quantity rented.
Page 29: Elasticity Comparison
Exam Question:
Comparison of tax shares paid by consumers for goods with different elasticities.
Page 30-31: Graphing Exercises
Graphing Tasks:
Create models for cotton candy market before and after tax imposition.
Analyze changes in consumer surplus, producer surplus, deadweight loss, and tax revenue.
This note summarizes the key concepts and exercises related to elasticity and taxes, providing a structured overview for study and