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ECON 1201 Lecture Notes - Lecture 11: Tax Efficiency, Luxury Goods, Economic Equilibrium

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Verified Note
whitegoose773
2 Oct 2018
School
UConn
Department
Economics
Course
ECON 1201
Professor
Owen Svalestad

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ECON 1201 Lecture Notes - Lecture 10: Normal Good

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ECON 1201 Lecture Notes - Lecture 11: Tax Efficiency, Luxury Goods, Economic Equilibrium

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ECON 1201 Lecture Notes - Lecture 12: Regressive Tax, Progressive Tax, Proportional Tax

Document Summary

The effect of an excise tax on quantities and prices. Taxes drive a wedge between the price buyers pay and the price sellers receive. To analyze the effects, we"ll graph two scenarios: When the tax is levied on sellers. When the tax is levied on buyers. The incidence of a tax is a measure of who really pays it. Inelastic side will bear more of the tax burden than the elastic side. The excise tax is shared between buyers and seller. The equilibrium price of hotel rooms rises to a night. Hotel guests bear some of the burden as price rises from to . Hotel owners also bear some of the burden as their price (net of the tax paid) The incidence of an excise tax doesn"t depend on who officially pays the tax. Although both buyer and seller share the burden of the tax, it is not necessarily and equal burden.

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Related Questions

If a tax is imposed on a market with inelastic demand and elastic supply, then the burden of the tax will be shared equally 
 
a) between buyers and sellers.
b) buyers will bear most of the burden of the tax. 
c) sellers will bear most of the burden of the tax. 
d) it is impossible to determine how the burden of the tax will be shared.

Suppose that congress decides to tax alcohol sellers because they are encouraging immoral behavior. In general, who will bear the burden of a tax on sellers?

A. It will depend on the elasticities of supply and demand.

B. It will be equally shared between buyers and sellers.

C. Sellers.

D. Buyers.

Label each of the following statements about the economics of taxes as true or false.
 
A) The incidence of a tax is determined by which group (buyers or sellers)
must actually pay the government.

B) When demand is inelastic and supply is elastic, the burden of a tax falls
mainly on producers.

C) When demand is elastic and supply is inelastic, the burden of a tax falls
mainly on consumers.

D) An excise tax can distort incentives and create missed opportunities for
mutually beneficial transactions.