Economics 1021A/B Chapter Notes -Production Quota, Tax Incidence, Economic Equilibrium

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Michael Parkin

Document Summary

Everything you earn and almost everything you buy is taxed. Tax incidence is the division of the burden of a tax between buyers and sellers. The price paid by buyers might rise by the full amount of the tax, then the burden of the tax falls entirely on buyers the buyers pay the tax. The price paid by buyers might rise by a lesser amount than the tax, then the burden of the tax falls partly on buyers and partly on sellers. The price paid by buyers might not change at all, then the burden of the tax falls entirely on sellers. A tax on sellers is like an increase in cot, so it decreases supply. To determine the position of the new supply curve, we add the tax to the minimum price that sellers are willing to accept for each quantity sold.