Summary
Summary Microeconomic Intervention and Taxes
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- CIE
Summary Notes on Microeconomic Intervention
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⑤ Show graphically the effect of a tax on market outcome ( equilibrium price and
quantity) .
P supply Tax From the
w .
supply producers perspective any tax levied on ,
them is just an increase in the marginal costs
(s B
DW h
Pz . . . . . . . .
✓ per unit .
Gov .
I A
Pa ? If the
i
government levies a tax on the producer
- -
-
. .
.
I .
,
: the
supply curve will shift up and a new equi
-
-
Demand librium will
t
at B
'
Pz
- - y s
be
, -
created The
,
quantity
.
.
.
PS
. .
i
i
i
.
Demand w .
Tax
atpoint B produced and demanded is less than
-
-
Q at A and has also a much
higher price at P2 .
Q2 Qn will also be
There a
deadweight loss .
④ Explain how the burden of a tax is divided
among buyers
and sellers .
Tax incidence is the manner in which the tax burden is divided between buyers and sellers .
When is more elastic than demand buyers bear most of the tax burden When demand is
supply , .
than of the cost of
more elastic supply, producers bear most the tax .
Tax revenue is
larger
the more inelastic the demand and
supply are .
③ what are the welfare effects of a tax ? Please use a
diagram to illustrate
your thoughts .
p
( w Tax)
'
s .
n
Tax welfare decrease
causes to ,
even
taking
into account the the S
gain in revenue
government consumer
surplus
from the tax
gets . pz . - - - - -
-
.
This decrease in welfare is
usually referred to i -
C Deadweight welfare loss
py
.
. . . - . .
. . .
. .
. ,
a dead weight loss due to the tax The dead
'
-
tax revenue .
.
Po -
.
- - - -
'
t
weight form of
/
loss due to an excise tax is a producer i
'
i D
surplus
economic
inefficiency .
i i
> Q
Q
⑤ consumer surplus Economic measurement of consumer benefits Happens when the =
.
Price paid for a product or service is less than the
price they are willing to pay .
Producer surplus much a person would be
Difference between how willing to accept
=
for given quantity of a
good versus how much
they can receive by selling it at market price .
Economic
efficiency when
all
goods and factors of production in an economy :
are distributed or allocated to their most valuable uses and waste is eliminated or minimized .
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