Intermediate Microeconomics · free preview
Tax Incidence
A tax drives a wedge between buyer and seller prices, the statutory payer does not matter, the split is set by relative elasticities, and the deadweight triangle grows with the behavioral response the tax shuts down.
1. The wedge
The wedge
2. Elasticity splits the burden
Elasticity splits the burden
3. The deadweight triangle
The deadweight triangle
4. Subsidies and the symmetric arithmetic
Subsidies and the symmetric arithmetic
5. Solving the wedge
A 4-dollar tax on sellers in the worked market. What are the buyer price, seller price, and quantity?
6. Statutory irrelevance
The same 4-dollar tax is levied on buyers instead of sellers. What changes?
7. Elasticity and burden
Which side bears more of a tax, and why?
8. The triangle's arithmetic
The 4-dollar tax cut quantity from 60 to 56. What is the deadweight loss?
9. The buyer share
With demand slope magnitude 2 and supply slope 2, compute the fraction of the tax borne by buyers, and write the number.
10. Revenue from the tax
Compute the government revenue from the 4-dollar tax at quantity 56, and write the number.
11. Doubling the tax
If the per-unit tax were 8 dollars instead of 4 in this market, what quantity would trade?
12. The buyer's price under a subsidy
A 4-dollar per-unit subsidy to sellers in this market. What buyer price emerges?
13. A steeper demand side
Suppose demand's slope magnitude were 4 instead of 2, supply unchanged at 2. What fraction of a tax would buyers bear?
14. Revenue from the bigger tax
At the 8-dollar tax with quantity 42, what revenue does the government collect?
15. Quantity under the doubled tax
With an 8-dollar tax in this market, compute the trading quantity, and write the number.
16. Buyer share with steeper demand
With demand slope magnitude 4 and supply slope 2, compute the buyers' fraction of the tax, and write the number as a decimal.
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