ECO100Y5 Chapter Notes - Chapter 7: Excise, Economic Equilibrium, Demand Curve
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ECO100Y5 Full Course Notes
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Excise tax tax charged on each unit of a good or service. Drives a wedge between price paid by consumers and received by producers, leading to a fall in quantity transacted. Say hotel owners charge /room and supply 10,000 rooms at equilibrium. For owners are willing to give 5,000 rooms pre-tax. Say the government imposes a tax, the owners are still willing to supply 5000 rooms but at each because they still want to profit . this causes a wedge. However, if excise tax is imposed on the consumers rather than prodcuers, the amount they"re willing to pay pre tax will be lowered by which would shift demand downwards. This illustrates a rule: it doesn"t matter whether the government taxes the consumers or producers; both have same effect. In this case everyone is at a loss per room.
