ECON 1B03 Lecture Notes - Lecture 9: Economic Equilibrium, Demand Curve, The Intercept
10 Jun 2018
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Government Policies: Sales Taxes on Firms
- Now, suppose that the government levies the $2 per pound sales tax on sports bar owners
- Agai, the goeet does’t ae hat the euiliiu pie is, ad the $2 ta ill appl o
matter what the price of wings happens to be
- All firms will now have to receive the equilibrium price paid by the consumers minus the $2
sales tax per pound which they have to give to the government
- If the consumers pay Pc, the firm ends up with Pc – t
o If the firms new supply is Qs = 10 + 10(Pc – 2)
o Qs = -10 + 10Pc
- The equation of the supply curve changes with the tax added
- The intercept changed; the slope remained the same
- That means the position of the supply curve will change but not its slope
- Before the tax, the Price-intercept of the supply curve was P = -1
- After the tax, the Price intercept of the supply curve is P = 1
- We have a general rule:
o When a sales tax is imposed on firms, the supply curve shifts up by the exact amount
of the tax
- To find the new equilibrium price and quantity, set the after-tax supply curve equal to the
demand curve
- 100 – 5Pc = -10 + 10 Pc
- Pc = $7.33
- Q = 63.35 pounds
- The firms receive Pc – t = $7.33 – 2 = $5.33
- Before the tax, consumers paid $6.00 and firms received $6.00 and 70 pounds of wings were
sold
- After tax, consumers pay $1.33 more than before, firms receive $0.67 less than before and
63.35 pounds are sold, fewer than before the tax
o The osuers’ urde of the ta is $.33
o The firs’ urde of the ta is $.
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ECON 1B03 Full Course Notes
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Document Summary
Now, suppose that the government levies the per pound sales tax on sports bar owners. Agai(cid:374), the go(cid:448)e(cid:396)(cid:374)(cid:373)e(cid:374)t does(cid:374)"t (cid:272)a(cid:396)e (cid:449)hat the e(cid:395)uili(cid:271)(cid:396)iu(cid:373) p(cid:396)i(cid:272)e is, a(cid:374)d the ta(cid:454) (cid:449)ill appl(cid:455) (cid:374)o matter what the price of wings happens to be. All firms will now have to receive the equilibrium price paid by the consumers minus the sales tax per pound which they have to give to the government. If the consumers pay pc, the firm ends up with pc t. If the firms new supply is qs = 10 + 10(pc 2: qs = -10 + 10pc. The equation of the supply curve changes with the tax added. The intercept changed; the slope remained the same. That means the position of the supply curve will change but not its slope. Before the tax, the price-intercept of the supply curve was p = -1. After the tax, the price intercept of the supply curve is p = 1.
