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Intros
Lessons
  1. Taxes Overview:
  2. Tax Incidence
    • The division of tax burden
    • 3 Cases
  3. Effects of Taxes
    • Taxes on Sellers
    • Taxes on Buyers
    • Conclusion
  4. Tax Incidence and Elasticity of Demand & Supply
    • Perfectly inelastic demand curve
    • Perfectly elastic demand curve
    • Perfectly inelastic supply curve
    • Perfectly elastic supply curve
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Examples
Lessons
  1. Understanding Effects of Taxes on Buyers and Sellers
    You have the following information:

    Chocolate bars (dollars)

    Quantity demanded (thousands per day)

    Quantity Supplied (thousands per day)

    1

    6

    4

    2

    5

    5

    3

    4

    6

    4

    3

    7

    5

    2

    8

    1. If chocolate bars are not taxed, what is the price of a chocolate bars and how many are bought?
    2. If sellers are taxed $2 dollar a chocolate bar, what is the price? How many are sold? Who pays the taxes?
    3. If buyers are taxed $2 dollar a chocolate bar, what is the price? How many are bought? Who pays the taxes?
  2. The demand function for laptops is P = 300 - 2Q, and the supply function is P = 100 + 3Q.
    1. If laptops are not taxed, what is the price of a laptop and how many are bought?
    2. If sellers are taxed $10 dollar a laptop, what is the price? How many are sold? Who pays the taxes?
    3. If buyers are taxed $10 dollar a laptop, what is the price? How many are bought? Who pays the taxes?
  3. Understanding Tax Incidence and Elasticity of Demand & Supply
    Suppose the demand curve for candy is perfectly inelastic, and a tax is imposed.
    1. Illustrate this in a graph.
    2. Who pays the taxes?
  4. The demand curve is perfectly elastic, and the supply curve is perfectly inelastic. Suppose the equilibrium price is $5, and the equilibrium quantity is 100.
    1. Illustrate this in a graph.
    2. What happens when a $1 tax is imposed? Who pays the taxes?