ECO 304K Lecture Notes - Lecture 7: Deadweight Loss, Demand Curve, Opportunity Cost
8 Nov 2016
School
Department
Course
Professor
Taxes, More on Demand Curves
Taxes: effects on P and Q, deadweight loss
D: P = 1000-2Qd S: P= 100+ Qs
Tax of $300 per puppy
1000-2Q - (100 + Q) = 300 -> Q^t =200
Negative tax- subsidy
What if we put the tax on the sellers?
Sellers treat as another cost
Take supply curve, add the tax, set it equal to demand and down
Plug Q = 200 into D to get P^B= 600
Plug Q= 200 into S to get P^s = 300
P of Buyer = up, P of Seller = down P^B-P^S= 300= tax
CS=A= ½ x 200 x (400) = 40,000
PS= C = ½ x 200 x 200 = 20,000
Govt Revenue= B= 200x 300 = 60,000 (units x tax) (direct burden)
Deadweight loss= reduction in total surplus
1000
100
500
Q
S
D
300
200
Amt.of tax
$300, pay
PB,
PS,
A
B
C
D
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ECO 304K Full Course Notes
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Document Summary
Taxes: effects on p and q, deadweight loss. D: p = 1000-2qd s: p= 100+ qs. 1000-2q - (100 + q) = 300 -> q^t =200. Take supply curve, add the tax, set it equal to demand and down. Plug q = 200 into d to get p^b= 600. Plug q= 200 into s to get p^s = 300. P of buyer = up, p of seller = down p^b-p^s= 300= tax. Ps= c = x 200 x 200 = 20,000. Govt revenue= b= 200x 300 = 60,000 (units x tax) (direct burden) Cost of the tax that we don"t see. Higest anyone is willing to pay is 1000 lowest is 100 tax of 2000 noone will pay, tax revenue will be 0. The who pays the tax doesn"t depend on who pays the tax theorem: buyers; the same is true of p^s and of q^t.
