ECON 104 Lecture Notes - Lecture 4: Seigniorage, Deadweight Loss, Excise
2 Feb 2016
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To change the outcomes in the markets. Progressiveness of taxes: average vs marginal tax rates. Statutory incidence: describe who sends cheque to the government. Buyer or seller pay tax are the same. Doesn"t care who sends the cheque as outcome is the same. In short, economic incidence of a tax does not depend on statutory incidence. Elasticity: a measure of sensitivity of quantity with respect to price. Elasticity of demand = % change in quantity divided by % change in price. Elasticity of supply = % change in quantity divided by % change in price. % change in quantity = (q1 - q0) / q0 = change in q/q. Economic incidence depends on elasticity of demand and supply curve. When the supply is more elastic then the buyer pays most of the tax. When the demand is more elastic then the seller pays most of the tax.
