ECON 201 Lecture Notes - Lecture 7: Opportunity Cost, Economic Surplus, Demand Curve

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30 Sep 2016

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Demand curve will shift when there"s a tax on sellers. A tax drives a wedge between the price buyers pay and the price sellers receive. A tax on sellers shifts the curve up by the amount of the tax. The outcome is the same in both cases. Case 1: supply is more elastic than demand. Case 2: demand is more elastic than supply. In case 2: it"s easier for buyers than seller"s to leave the market. Sellers bear most of the burden of the tax. If you want to protect consumers then you should levie tax because then sellers would be in charge of the tax. Conclusion: government policies and the allocation of resources. Each of the policies in this chapter affects the allocation of society. It"s important for policymakers to apply such policies very carefully. Chapter 7: consumers, producers, and the efficiency of markets. A buyer"s wtp is the buyer"s value on the product.

Related Questions

5. If the government decides to levy a small excise tax on the buyers la perfectly competitive market in which the demand is perfectly elastic and supply curve is positively sloped, then we can conclude that: (A) The buyers will bear all of the tax, and there will be some excess burden. (B) The sellers will bear all of the tax, and there will be some excess burden. TC) The tax burden will be shared. The buyers will bear more of the tax than sellers, and there will be some excess burden. (D) The tax burden will be shared. The sellers will bear more of the tax than buyers, and there will be some excess burden. (E) The buyers will bear all of the tax, and there will be no excess burden. (F) The sellers will bear all of the tax, and there will be no excess burden. (G) The tax burden will be shared. The buyers will bear more of the tax than sellers, and there will be no excess burden. (H) The tax burden will be shared. The sellers will bear more of the tax than buyers, and there will be no excess burden. (1) The buyers will bear all of the tax, and they will also bear the excess burden. (J) none of the above

7. Effect of a tax on buyers and sellers

The following graph shows the daily market for wine. Suppose the government institutes a tax of $23.20 per bottle. This places a wedge between the price buyers pay and the price sellers receive.

Fill in the following table with the quantity sold, the price buyers pay, and the price sellers receive before and after the tax.

Quantity(bottles of wine) Price buyers pay(Dollars per bottle) Price sellers receive(Dollars per bottle)

Before tax

After tax

Using the data entered in the previous table, calculate the tax burden that falls on buyers and on sellers, respectively, and calculate the price elasticity of demand and supply over the relevant ranges using the midpoint method. enter your results in the following table.

Tax burden(Dollars per bottle) Elasticity

Buyers

Sellers

The burden of the tax falls more heavily on the ..........elastic side of the market.

champagnehippopotamus285

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

ECON 201 Lecture Notes - Lecture 7: Opportunity Cost, Economic Surplus, Demand Curve

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