Microeconomics · free preview
Taxes and Who Really Pays
A per-unit tax drives a wedge between what buyers pay and sellers keep, the split follows elasticities rather than the law's addressee, and the wedge costs a deadweight triangle.
1. The wedge
The wedge
2. The law cannot aim a tax
The law cannot aim a tax
3. The revenue and the triangle
The revenue and the triangle
4. Fairness and the honest tradeoff
Fairness and the honest tradeoff
5. Computing the wedge
Honey demand is Qd = 120 - 2P and supply Qs = 3P, equilibrium 24 and 72. A 6 dollar per-unit tax is levied on sellers. What are the new buyer price, seller net price and quantity?
6. Elasticity and incidence
Two markets have identical straight-line curves except that one has very inelastic demand and elastic supply. A 6 dollar tax is levied on sellers in both. Where does the burden fall in the inelastic-demand market?
7. The revenue
A 6 dollar per-unit tax leaves 64.8 jars trading. Compute the government's tax revenue in dollars and write the number with one decimal.
8. Splitting the six dollars
The 6 dollar honey tax leaves buyers paying 27.60 dollars and sellers receiving 21.60. Who really pays the tax?
9. The sticky side of the market
Two markets have identical straight-line curves except one has much more inelastic demand. Where does a per-unit tax bite hardest?
10. Revenue from a smaller tax
Honey demand is Qd = 120 - 2P and supply Qs = 3P, and a 4 dollar per-unit tax on sellers leaves 67.2 jars trading. Compute the government's tax revenue in dollars, and write the number.
Practice this interactively
Free account · instant grading · spaced review that schedules itself.
Start this course for free