Taxes

Everything You Need in One Place

Homework problems? Exam preparation? Trying to grasp a concept or just brushing up the basics? Our extensive help & practice library have got you covered.

Learn and Practice With Ease

Our proven video lessons ease you through problems quickly, and you get tonnes of friendly practice on questions that trip students up on tests and finals.

Instant and Unlimited Help

Our personalized learning platform enables you to instantly find the exact walkthrough to your specific type of question. Activate unlimited help now!

0/3
?
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
0/10
?
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?
Topic Notes
?

Taxes


Tax Incidence: the division of tax burden between buyers and sellers.


When a good is taxed, then 3 things could happen:
  1. Price rises by the full amount of the tax.
    -\quad Buyers pay the tax
  2. Price rise by a lesser amount than the tax
    -\quad Buyers and sellers share the burden of the tax
  3. Price does not rise
    - \quad Sellers pay the tax

Effects of Taxes


Taxes on Sellers: Sellers treat taxes the same as an increase in production cost, so it shifts the supply curve leftward.

Effect of taxes on sellers increase production cost

Conclusion: Buyers end up paying more because of tax, and sellers receive less money. There is deadweight loss.


Taxes on Buyers: Taxes make the item more expensive, so less people want to buy it. This causes the demand curve to shift leftward

Effect of taxes on buyers increase item price

Conclusion: Buyers end up paying more because of tax, and sellers receive less money. There is deadweight loss.


Tax Incidence and Elasticity of Demand & Supply


For a perfectly inelastic demand curve, buyers pay all the taxes

Tax incidence for a perfectly inelastic demand curve

For a perfectly elastic demand curve, sellers pay all the taxes

Tax incidence for a perfectly elastic demand curve

For a perfectly inelastic supply curve, sellers pay all the taxes

Tax incidence for a perfectly inelastic supply curve

For a perfectly elastic supply curve, buyers pay all the taxes

Tax incidence for a perfectly elastic supply curve