ECO-4 Lecture Notes - Lecture 14: Avoidance Speech, Divisor, Economic Surplus
Document Summary
Tax incidence & elasticity of demand & supply. Tax makes msb exceed msc shrink producer surplus + consumers surplus = deadweight loss. New supply curve does not show msc tax component isn"t social cost of production it is a transfer of resources to the government. Only when there is perfectly inelastic demand/supply = no deadweight loss because no change in quantity bought. Decreased supply = decreased quantity + increased price. New supply curve = cost of breaking law + minimum price that drug dealers willing to accept. Demand decreases : decreased quantity + decreased price. Penalties heavier on sellers = supply curve shifts farther than demand curve = market price rises. Penalties heavier on buyers = demand curve shifts farther than supply curve = market price lowers. In canada penalties on sellers = larger than buyers to increase price. Why not decrease demand/supply till quantity = zero.
