Log in
HomeClass Notes1,200,000US530,000

ECN 001A Lecture Notes - Lecture 11: Laffer Curve, Demand Curve, Tax Rate

41 views3 pages
School
UC-Davis
Department
Economics
Course
ECN 001A
Professor
P.Lombardi

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

limepig485 and 4 others unlocked
ECN 001A Full Course Notes
14
ECN 001A Full Course Notes
Verified Note
14 documents

Document Summary

Ch 8 - application: the costs of taxation. Drives a wedge between what consumers pay and what producers receive. Raises the price buyers pay and lowers the price sellers receive. Effects are the same whether the tax is imposed on buyers or sellers. Need to determine cs, ps, tax revenue, and total surplus with and w/o tax. Tax revenue can fund beneficial services total surplus. Cs = a + b + c. Ts = cs (a + b + c) + ps (d + e + f) Tax reduces ts by c + e = deadweight (ex. Education, roads, police) so we include it in loss. With a tax, there is an efficiency loss by the economy. Deadweight loss (dwl) of the tax: the fall in ts that results from a market distortion. Units in this area are not sold. The value of these units to buyers is greater than the cost of producing them.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Class+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers

Related Documents

ECN 001A Lecture 20: ECN 1A - Chap 8 & 13 (Lecture 20 - 22)
sangrialion135
ECN 001A Lecture Notes - Lecture 9: Tax Incidence, Price Ceiling, Price Floor
aquamarinehound811
ECN 001A Lecture Notes - Lecture 16: Tax Incidence, Opportunity Cost, Economic Equilibrium
sangrialion135

Related Questions

1) Taxing a monopoly (20 Points) Suppose that a monopolist sells a product to consumers with an aggregate demand that is downward sloping in quantity, D(Q) = 200 − 2Q. The total cost of producing Q units is C(Q) = 20Q + 2Q2 .

a) Identify the unregulated equilibrium (P ∗ , Q∗ )

b) What are the consumer and producer surpluses (CS and PS) and total welfare (W) at this equilibrium?

c) Suppose that a specific tax of τ = 20 is imposed on each unit. i. What price-quantity pair (P 1 , Q1 ) would we expect? ii. What are CS, PS, tax revenue (T), and W? iii. What is deadweight loss?

d) Instead of a specific tax, an ad valorem tax, α = 16 is imposed i. What price-quantity pair (P 2 , Q2 ) would we expect? ii. What are CS, PS, T, and W? iii. What is deadweight loss?

e) Welfare distribution i. Which scenario results in the highest producer surplus? ii. Which scenario results in the greatest gains for consumers, assuming that all tax revenues are perfectly redistributed to consumers only.

The market for packets of cigarettes has been described by the following supply and demand functions:

Supply: P = 10 + 4Q Demand: P = 100 - 5Q where P is the price in dollars and Q is the quantity of packets of cigarettes per month (in thousands).

Part A) Construct a graph of supply and demand for this market showing all intercepts. What are the equilibrium prices and quantities? Show these on your graph.

Part B) At the market equilibrium price, what would be the total monthly revenue?

Part C) Calculate consumer surplus at the market equilibrium and indicate this surplus as an area on your diagram.

Part D) Calculate producer surplus at the market equilibrium and indicate this surplus as an area on your diagram.

Part E) Assume that a per-unit tax of $9.00 per packet of cigarettes is imposed by the government on the suppliers of cigarettes. Depict this on your demand and supply diagram. (Hint: the new tax inclusive supply function will be: P = 19 + 4Q). What is the new market equilibrium quantity? What price will consumers now pay and what price will suppliers now receive?

Part F) How much is the government revenue from the tax on suppliers?

Part G) Calculate consumer surplus and producer surplus after the imposition of the tax and any deadweight loss associated with the tax. Indicate these surplus and tax revenue areas on your diagram. Explain what the deadweight loss represents.

Part H) Now assume that instead of imposing a per-unit tax of $9.00 per pack on the suppliers of cigarettes the government decides to apply the same per-unit tax of $9.00 on consumers. Depict this on your demand and supply diagram. (Hint: the new tax inclusive demand function will be: P = 91 - 5Q) What is the new market equilibrium quantity? What price will consumers now pay and what price will suppliers now receive? (5 marks)

Part I) How much is the government revenue from the tax on consumers? (1 mark)

Part J) Who bears the greatest burden of the tax in each case, producers or consumers? Does your answer depend on whether the tax is levied on producers or consumers?

I am really having difficulty understanding Part J - can that please be answered with some detail?