ECN 104 Lecture 6: Chapter 7
5 Dec 2016
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Document Summary
An excise tax is a per-unit tax on sales of a good or service. Petroleum products (unleaded gas: sh. 10 per litre) Fuel-inefficient automobiles (consumption of 16 or more litres per 100 kilometres, Effects of excise taxes on prices and quantities: Reduce the price received by sellers: create a wedge between the two prices. Example: an excise tax imposed on hotel owners. Excise tax = per room: supply curve shifts upwards by the amount of tax, demand curve shifts downward by the amount of the tax. The incidence of a tax is a measure of who really bears the tax burden (in the form of higher prices to consumers and lower prices to sellers) Two important principles of taxation: incidence does not depend on who officially pays the tax, incidence depends on the shapes of supply and demand curves (price elasticities!)
