Econ Chapter 6: Taxes and Subsidies
Tax on Sellers
Increases the price that buyers pay and decreases the price that sellers receive
Tax on Sellers Effect on the Supply Curve
Supply curve shifts to the left to reflect the higher marginal costs, leads to decline in q sold
Price ceilings
a maximum price that can be legally charged for a good or service
Price floors
a minimum price allowed by law
Economic burden of tax
burden created by the change in after-tax prices faced by buyers and sellers
Statutory Burden of tax
burden of being assigned by the gov the responsibility of sending a tax payment
Buyers bear smaller burden when
demand is elastic
Tax incidence
division of the economic burden of a tax between buyers and sellers
Tax on Buyer vs Tax on Seller
effect same on both sides regardless of who the tax is imposed on
When there is less distortion
gov revenue higher
When there is lots of distortion
gov revenue lower
Price controls
legal restriction on maximum price that can be charged in a market or legal restriction that a good must be sold higher than a particular price
Quota
limit on max quantity that can be sold in a marker
Quantity regulation
min or max quantity that can be sold
Subsidies
payment made by gov to those who make a specific choice, encourage certain behavior
Binding price ceiling
price ceiling that prevents market from reaching the market equilibrium price, set below equilibrium price
Cause shortages
price ceilings
Binding price floor
price floor that prevents the market from reaching the equilibrium, lowest price sellers can charge set above the equilibrium price
Causes surpluses
price floors
Mandate minimum
requirement to buy or sell a minimum amount of a good
Tax on Buyers effect on the demand curve
shifts demand curve to the left to reflect the lower willingness to pay
Sellers bear smaller burden when
supply is elastic
Who pays more of the tac
whoever has more elastic curves
