MAE101 Lecture Notes - Lecture 4: International Trade, Tariff, Price Floor
Document Summary
Used to raise government revenue, support specific groups for equity and to alleviate market failure. Can be levied through a fixed charge per unit of output or a percentage of the price. Price elasticities influence the sharing of the tax burden. Post-tax consumer surplus is identified using original demand curve and new price paid by buyers. Consumer surplus falls both due to higher price and smaller quantity. Deadweight loss occurs due to smaller output and losses in cs and ps are not transferred as gain to anyone prevents mutually beneficial trades (found from original curve) Tax burden falls more heavily on less elastic side of the market. The larger the tax rate the larger the deadweight loss. Per-unit tax = price consumer pay price producers receive impact of buyer-tax on producer surplus. Producer surplus falls both due to lower price and smaller quantity. Pb e u n e v e r x a. Attempt to control market price through legislation.
