Tax

1. Microeconomics
!
Lecture 6
!
Supply, Demand, and
Government Policies

2. Quiz Insurance
!
Ali Tabbara
Monday at 12 noon
S1-46
S2-41

3. Key Terms
price ceiling
price floor
tax incidence

4. 100
90
80
70
60
50
40
30
20
10
0
Supply
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity

5. 10 Questions
1. What is the equilibrium price?
2. What is the equilibrium quantity?
3. If the market price was 80, how many pizzas would be
sold?
4. If the market price was 30, how many pizza would be
sold?
5. If the market price was 80, would there be a shortage,
surplus, or equilibrium?
6. If the market price was 30, would there be a shortage,
surplus, or equilibrium?
7. What would be the quantity demanded at a price of 80?
8. What would be the quantity supplied at a price of 80?
9. What would be the quantity demanded at a price of 30?

6. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

7. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

8. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

9. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

10. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

11. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

12. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QD = QS

13. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
QS - QD
5 - 5
0 1 2 3 4 5 6 7 8 9 10
QD = QS

14. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
QS - QD
5 - 5
0 1 2 3 4 5 6 7 8 9 10
QD = QS
No Shortage
No Surplus

15. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

16. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

17. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

18. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

19. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

20. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QD

21. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QD

22. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QD

23. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QD

24. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QD QS

25. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
QS - QD
8 - 2
0 1 2 3 4 5 6 7 8 9 10
QD QS

26. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
QS - QD
8 - 2
Surplus of 6
0 1 2 3 4 5 6 7 8 9 10
QD QS

27. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

28. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

29. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

30. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

31. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

32. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10

33. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QS

34. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QS

35. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QS

36. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QS

37. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
0 1 2 3 4 5 6 7 8 9 10
QS QD

38. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
QS - QD
3 - 7
0 1 2 3 4 5 6 7 8 9 10
QS QD

39. Price
Supply
Demand
Quantity
100
90
80
70
60
50
40
30
20
10
0
QS - QD
3 - 7
Shortage of 4
0 1 2 3 4 5 6 7 8 9 10
QS QD

40. 10 Questions
1. What is the equilibrium price? 50
2. What is the equilibrium quantity? 5
3. If the market price was 80, how many pizzas would be sold? 2
4. If the market price was 30, how many pizza would be sold? 3
5. If the market price was 80, would there be a shortage, surplus,
or equilibrium? surplus
6. If the market price was 30, would there be a shortage, surplus,
or equilibrium? shortage
7. What would be the quantity demanded at a price of 80? 2
8. What would be the quantity supplied at a price of 80? 8
9. What would be the quantity demanded at a price of 30? 7
10. What would be the quantity supplied at a price of 30? 3

41. Tax Liability
Tax Incidence

42. Tax Liability
Who is legally responsible to
pay the tax to the
government
Tax Incidence

43. Tax Liability
Who is legally responsible to
pay the tax to the
government
Tax Incidence
Who actually pays the tax

44. Just because I have the Tax Liability
does not mean that I have the
Tax Incidence

45. 100
90
80
70
60
50
40
30
20
10
0
Supply
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Demand

46. Pizza Tax Questions
1. What is the equilibrium price before the tax?
2. What is the equilibrium quantity?
3. If the tax is 20 SAR, what will be the new price?
4. If the tax is 20 SAR, how many pizza would be sold?
5. What will be the total revenue with the new tax?
6. How much tax will the seller pay?
7. How much tax will the buyer pay?
8. How much will the total tax be?
9. How much did the seller earn after paying the tax?
10. Why isn’t the new price 70?

47. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax

48. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax

49. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax

50. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax

51. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax

52. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax

53. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax

54. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

55. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

56. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

57. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

58. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Tax on Supplier of 20
Shift the curve up by 20

59. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

60. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

61. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

62. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

63. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

64. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

65. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

66. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

67. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

68. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

69. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Seller Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

70. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Taxes
of 20
Seller Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

71. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Taxes
of 20
Seller Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

72. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Taxes
of 20
Seller Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

73. 100
90
80
70
60
50
40
30
20
10
0
Demand
0 1 2 3 4 5 6 7 8 9 10
Price
Quantity
Pizza Tax
Buyer Price
Taxes
of 20
Seller Price
Supply
no tax
Supply
with tax
Tax on Supplier of 20
Shift the curve up by 20

74. Taxes
• Taxes discourage market activity
• Value creation is reduced
• Buyers and sellers share the burden
• Buyers pay more, sellers receive less