ECON 200 Lecture Notes - Lecture 22: Tax Incidence, Demand Curve, Marginal Cost

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erinsea-lion256

4 Nov 2016

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Economics

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ECON 200

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Byunghoon Nam

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ECON 200 Full Course Notes

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Econ 200 i lecture 22 basics of taxes. The government levies taxes on goods and services to raise revenue for national defense, public school, etc: can be imposed on buyers or sellers, the tax can be a % of a price or a specific amount. We will be analyzing per-unit taxes only for simplicity. Tax incidence: how the burden of a tax is shared among market participants. The tax raises the seller"s cost by the amount of tax. The supply curve shifts upward by the amount of tax: note that it shifts up and not left! Height of the supply curve = cost of marginal seller. Seller chooses q where p = mc + tax: mc = marginal cost. If tax is imposed on sellers, the equilibrium shifts: Sellers receive ps = p2 tax: tax is the red line, tax = pb ps. What does this mean: taxes discourage market activity (q decreased, both buyers and sellers share the burden.

Related Questions

Henry told us in his guide to the Institutional Framework of Taxation in Australia that the Australian Taxation System is one of the most complex in the world and is made up of approximately 125 taxes including taxes such as Income Tax, Capital Gains Tax, Fringe Benefits Tax and Goods and Services Tax just to name a few. He also mentioned that there are many different organisations that play different and varied roles within this system to ensure its integrity and all Australians are equally treated with equity.
The Australian Taxation System is embedded in the way of life for all Australian taxpayers, we pay tax on our income, we pay tax when we purchase goods and use services, we pay tax when we sell assets and this is just to name a few but in return the Government provides services and benefits e.g. hospitals, schools, defence, and financial assistance to those in need etc.
As we know the government relies very heavily on the revenue from taxation to be able to finance its activities and services it offers to the public and reforms on taxation are often a focus of governments. An area of taxation reform that is constantly under review is a rise in the current GST rate or broaden the GST base (e.g. make basic foods taxable). Many feel that this would solve some of the governmentâs financial woes, whilst other are adamantly against any rise or broaden of the tax base. This is a very political issue and is extremely topical as the government, opposition and the premiers of the Australian States/Terrorities are engaged in heated debates regarding the issue of GST and its possible reform.
The assessment requires you to review this topical area of taxation (GST Reform).

Some views may be that it is not unreasonable to raise the GST rate as compared to other OECD countries the Australian rate is very low, that broadening the tax base will make GST a simpler tax remembering that businesses are responsible for its collection and a more simply system will lessen their burden. Others may view it as that the GST rate should not be raised or the base broaden as it will cause more financial stress on some areas of the public, it may be the view that it is too much of a problem politically for a government to introduce changes to GST especially as we head into an election year â¦.. WHAT WILL YOUR VIEW BE?
The requirements of the assignment for part two is to produce a 1000 to 1500 word essay on your opinion of this topic

Country A is located on a small island that is isolated from the outside world. The country
has one representative consumer, whose preference is represented by:
U(c, l) = ln(c) + ln(l)
There is one representative fi rm in the economy which is owned by the consumer, it produces
one type of good that can be used for consumption or government expenditure using capital
and labour as inputs. The fi rm owns the capital it uses and it's production technology is
represented by
F(K;N) = zK^aN^1-a
where z is the total factor productivity, and a is the capital share of income. The fi rm pays
all of its profit back to consumer as dividend.
The government of country A spend a predetermined G amount of goods to provide public
services, and it taxes consumer through a lump-sum tax t to finance the expenditure. the
government's budget is balanced:
G = t
Now, suppose that the firm cannot change its capital stock, or improve its production technology in the short period, such that z and K are given.
(a) When describing this economy as an macroeconomic model, what is the set of exogenous
variables? What is the set of endogenous variables that can be determined given the set
of exogenous variables using the concept of Competitive Equilibrium?
(b) Defi ne the competitive equilibrium for this economy, be specific about what it is, what
conditions have to be satisfied who solves what problem and etc.
(c) List the set of equations that will be used to determine all of the endogenous variables.
Which four of these endogenous variables are essentials, such that once you know these
four, all other endogenous variables can be obtained easily?
(d) Write down the four equations that can be used to solve for these four essential endogenous variables, and describe where do they come from. Describe in details the steps of
how would you solve for the competitive equilibrium (without actually solving for it ).
(e) Setup the Social planner's problem for this economy. What is the marginal condition
that pins down the planner's choices.
(f) Now, describe what would happen to c, l, and w if the firm had more capital, such
that Knew > Kold.

1. Scarcity in economics means: we do not have sufficient resources to produce all the goods and services we want. the wants of people are limited. there must be poor people in rich countries. shortages exist in nearly all markets. You like to read Vogue and Sports Illustrated. You have only $5 to spend, so you only buy Sports Illustrated. The statement that best represents this economic concept is: resources are scarce. the real cost of something is what you must give up to get it. positive economics explains how the economy actually works. economic models are used to answer âwhat ifâ questions. . If the state government allocates additional spending on education, the opportunity cost is: zero. the dollar amount of the additional spending. considered only if additional taxes need to be raised to fund the spending. measured in terms of the best alternative use for that money. For a student that owns his or her own home and doesn't plan to live in the dorm the cost of going to college is: tuition and the cost of housing. tuition, the cost of housing, and the cost of books. tuition, the cost of books, and forgone income. forgone income only. Keynesian economics stressed: the importance of total spending. the self-correcting power of free markets. the long run. that the Depression should run its course to bring down the high cost of living. The economic policy that uses changes in government spending and taxes to affect the overall spending in the economy is known as: a tax-and-spend policy. monetary policy. fiscal policy. free-trade policy. When building a model, economists: simplify reality in order to highlight what really matters. attempt to duplicate reality in all of its complexity. ignore the facts and instead try to determine what the facts should be. are careful to avoid the scientific method. Which is a normative statement? The minimum wage has not kept pace with inflation. The minimum wage is an important tool in fighting poverty and should be increased. The minimum wage can create higher unemployment for teens and unskilled workers. A higher minimum wage is expected to increase the price of a fast-food cheeseburger. Which is an example of a positive statement? The poverty rate should be 4%. A high rate of economic growth is a more important economic goal than a low rate of unemployment. The federal government pays for 46% of U.S. health care costs. Everyone in the country should be covered by national health insurance. Economists may disagree about policies because they: may approach the issue using the same sets of values. may use different economic models. enjoy disagreeing with each other. only consider issues in positive economics.

ECON 200 Lecture Notes - Lecture 22: Tax Incidence, Demand Curve, Marginal Cost

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