Log in
HomeClass Notes1,200,000US530,000

ECON 10a Lecture Notes - Lecture 8: Deadweight Loss, Price Elasticity Of Demand, Arthur Laffer

18 views2 pages
School
Brandeis University
Department
Economics
Course
ECON 10a
Professor
Coiner Harry( Michael)

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

It doesn t matter if the sales tax is paid by sellers or buyers. The burden of tax is divided amongst buyers and sellers. Again, it is more appropriate to think vertically, in that sales tax shifts the. Demand downward: the government collects tax revenue from the implementation of a tax. The tax revenue can be calculated by finding the difference between the price paid by buyers and sellers and multiplying by the quantity of goods sold. It is important to note that the tax revenue is not counted amongst the producer or consumer surplus, but is still part of the total surplus of the market: the laffer curve. Introduced by economist arthur laffer, the laffer curve describes how tax rates affect overall tax revenue. This is dependent on the cash register price over the quantity. Whichever group has a lower elasticity pays more than half of the tax.

Get access

Grade+
$40 USD/m
Billed monthly
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
10 Verified Answers
Class+
$30 USD/m
Billed monthly
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
7 Verified Answers

Related Documents

ECON 10a Lecture Notes - Lecture 8: Economic Equilibrium, Deadweight Loss, Demand Curve
rubysea-lion113
ECON 10a Lecture Notes - Lecture 7: Cash Register
rubysea-lion113
ECON 10a Lecture Notes - Lecture 10: Playstation 3, Economic Surplus, Form 10-Q
plumdinosaur685

Related Questions

2. If the government decides to levy a small excise tax on the buyers in a perfectly competitive market in which the elasticity of demand is greater than the elasticity of supply, then we can conclude that: (A) The buyers will bear all of the tax (B) The sellers will bear all of the tax (C) The buyers will bear more of the tax than sellers ((D) The sellers will bear more of the tax than buyers YE) The government will bear most of the tax (F) It is not possible to tell who will bear most of the tax without additional information (G) The tax will be shared equally between the buyers and the sellers (H) There will be a smaller amount of excess burden than there would have been if the elasticity of supply is greater than the elasticity of demand (I) all of the above (J) none of the above

Suppose that a market is described by the following supply and demand equations:

QS= 2P

QD = 300P

a. Solve for the equilibrium price and the equilibrium quantity.

b. Suppose that a tax of T is placed on buyers so the new demand equation is QD = 300 (PT). Solve for the new equilibrium. What happens to the price received by sellers, the price paid by buyers, and the quantity sold?

c. Tax revenue is T×Q. Use your answer to part (b) to solve for tax revenue as a function of T. 
d. The deadweight loss of a tax is the area of the triangle between the supply and demand curves. Recalling that the area of a triangle is , solve for deadweight loss as a function of T. 

(Hint: Looking sideways, the base of the deadweight loss triangle is T, and the height is the difference between the quantity sold with the tax and the quantity sold without the tax.)

 

1. Assume S(P-)=50+P- D(P+)=370-3P+

Sales tax of 20%

Calculate the equilibrium buyers' and sellers' price with no sale tax, and then with the 20% tax assumed above.

2. Assume S(P-)=50+3P- D(P+)=370-P+

Sales tax of 20%

Calculate the equilibrium buyers' and sellers' price with no sale tax, and then with the 20% tax assumed above.

3. Explain how you answer for question 1 and 2 illustrate the principle that the less responsive side of the market (with a smaller price coefficient) will pay more than half the total cost of a sales tax.

4. Draw diagrams of question 1 and 2 and explain how they illustrate your answer to question 3.
[Hint: Be careful about drawing the relative slopes of the supply and demand functions.]

5. Suppose the government sets a controlled price below the market clearing price for a commodity. Draw a diagram and use the idea of a maximum buying price to explain whether the total price paid by the buyers will end up lower or higher than before.

Could someone help me with number 3,4, and 5? Please and thank you!!