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Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
Welfare Effects of Taxes and Subsidies
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Welfare Effects of Taxes and Subsidies

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Unit 1 Micro Revision

Unit 1 Micro Revision

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  • 1. Unit 1 MicroWelfare Effects ofIndirect Taxes andSubsidies
  • 2. Welfare Effects of a Tax and a SubsidyCosts andBenefitsOutputDemandSupply pre taxABSupply post tax
  • 3. Welfare Effects of a Tax and a SubsidyCosts andBenefitsOutputDemandSupply pre taxABSupply post taxBCConsumerpays BSupplierreceives C
  • 4. Welfare Effects of a Tax and a SubsidyCosts andBenefitsOutputDemandSupply pre taxABSupply post taxBCConsumerpays BSupplierreceives CTax revenue
  • 5. Welfare Effects of a Tax and a SubsidyCosts andBenefitsOutputDemandSupply pre taxABSupply post taxBCConsumerpays BSupplierreceives CTax revenue
  • 6. Welfare Effects of a Tax and a SubsidyCosts andBenefitsOutputDemandSupply pre taxABSupply post taxBCConsumerpays BSupplierreceives CTax revenueConsumerburden
  • 7. Welfare Effects of a Tax and a SubsidyCosts andBenefitsOutputDemandSupply pre taxABSupply post taxBCConsumerpays BSupplierreceives CTax revenueConsumerburden
  • 8. Welfare Effects of a Tax and a SubsidyCosts andBenefitsOutputDemandSupply pre taxABSupply post taxBCConsumerpays BSupplierreceives CTax revenueConsumerburdenProducer burden
  • 9. Quick Test!An indirect tax on theproduction of a good willhave no effect on price ifthe price elasticity ofdemand is? _________If elasticity of demand fora product is (-) 0.4 thenthe majority of theburden of a tax on theproducer will be paid bythe _________________In the event of a new taxon a product, the pricewill rise by the fullamount of the tax whenthe price elasticity ofdemand is ___________
  • 10. Quick Test!An indirect tax on theproduction of a good willhave no effect on price ifthe price elasticity ofdemand is? _________
  • 11. Quick Test!An indirect tax on theproduction of a good willhave no effect on price ifthe price elasticity ofdemand is? Infinity
  • 12. Quick Test!An indirect tax on theproduction of a good willhave no effect on price ifthe price elasticity ofdemand is? InfinityIf elasticity of demand fora product is (-) 0.4 thenthe majority of theburden of a tax on theproducer will be paid bythe
  • 13. Quick Test!An indirect tax on theproduction of a good willhave no effect on price ifthe price elasticity ofdemand is? InfinityIf elasticity of demand fora product is (-) 0.4 thenthe majority of theburden of a tax on theproducer will be paid bythe Consumer
  • 14. Quick Test!An indirect tax on theproduction of a good willhave no effect on price ifthe price elasticity ofdemand is? InfinityIf elasticity of demand fora product is (-) 0.4 thenthe majority of theburden of a tax on theproducer will be paid bythe ConsumerIn the event of a new taxon a product, the pricewill rise by the fullamount of the tax whenthe price elasticity ofdemand is ___________
  • 15. Quick Test!An indirect tax on theproduction of a good willhave no effect on price ifthe price elasticity ofdemand is? InfinityIf elasticity of demand fora product is (-) 0.4 thenthe majority of theburden of a tax on theproducer will be paid bythe ConsumerIn the event of a new taxon a product, the pricewill rise by the fullamount of the tax whenthe price elasticity ofdemand is ZERO
  • 16. Welfare effects of a subsidyCosts andBenefitsOutputDemandSupply post subsidyABSupply pre subsidy
  • 17. Welfare effects of a subsidyCosts andBenefitsOutputDemandSupply post subsidyABSupply pre subsidyCD
  • 18. Welfare effects of a subsidyCosts andBenefitsOutputDemandSupply post subsidyABSupply pre subsidyCDESupplierreceives CConsumerpays B
  • 19. Welfare effects of a subsidyCosts andBenefitsOutputDemandSupply post subsidyABSupply pre subsidyCDESupplierreceives CConsumerpays BSubsidypayment
  • 20. A subsidy when demand is price elasticPriceOutputDemandSupply post subsidyABSupply pre subsidy
  • 21. A subsidy when demand is price elasticPriceOutputDemandSupply post subsidyABSupply pre subsidyCD
  • 22. A subsidy when demand is price elasticPriceOutputDemandSupply post subsidyABSupply pre subsidyCDE
  • 23. A subsidy when demand is price elasticPriceOutputDemandSupply post subsidyABSupply pre subsidyCDE
  • 24. A subsidy when demand is price elasticPriceOutputDemandSupply post subsidyABSupply pre subsidyCDEElastic demand – so asubsidy causes a large risein quantity demanded

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