ECON101 Lecture Notes - Lecture 10: Tax Incidence, Unemployment Benefits, Production Quota

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Wokia Kumase

Document Summary

Econ101-004 lecture 10 taxes, quotas, subsidies. Who pays the taxes: you pay sales tax added to the prices you pay, your employer pays their contribution to the. Employment insurance tax, tobacco producers pay tax on cigarettes. Elasticity of demand and supply determines who pays the tax. Tax incidence: division of the burden of a tax between buyers and sellers. A tax on sellers: tax on sellers is like an increase in cost so it decreases supply. A tax on buyers: a tax on buyers lowers the amount they are willing to pay sellers, decreases demand. Tax incidence is the same regardless of whether the law says sellers pay or buyers pay. Division of tax between buyers and sellers depends on the elasticity of demand. The more inelastic the demand, the larger is the amount of the tax paid by buyers. If good is inelastic in demand, you will make more tax revenue.