This document discusses market equilibrium and how it is impacted by quantity taxes. It begins by defining market equilibrium as the point where quantity demanded equals quantity supplied. It then shows market equilibrium graphically using demand and supply curves.
The document explains that a quantity tax, whether levied on buyers as a sales tax or sellers as an excise tax, shifts the demand and supply curves and changes the market equilibrium. Specifically, it lowers the quantity traded and splits the tax amount between higher prices paid by buyers and lower prices received by sellers.
The document also discusses two special cases: when supply is fixed regardless of price, and when supply is extremely sensitive to price. It concludes by showing the calculations to determine the new market
Formation genre fiches d'information m raabMichaela Raab
Une dizaine de fiches d'information développées par Michaela Raab à partir de plusieurs sources, à l'occasion d'une formation sur le genre en Afrique Subsaharéenne (2012).
Revisar páginas 3.2, 3.3, 3.4 y 3.5, y responde a las siguientes preguntas:
1) ¿Alrededor de qué año se espera que India supere en población a China?
2) ¿En torno a cuánto se estima la población mundial para el año 2040 y 2050? ¿Le parecen razonable estas estimaciones?
What is the current state of web analytics tools and their usage today? - and to what extent should we expect today to provide us comfort for the future.
Formation genre fiches d'information m raabMichaela Raab
Une dizaine de fiches d'information développées par Michaela Raab à partir de plusieurs sources, à l'occasion d'une formation sur le genre en Afrique Subsaharéenne (2012).
Revisar páginas 3.2, 3.3, 3.4 y 3.5, y responde a las siguientes preguntas:
1) ¿Alrededor de qué año se espera que India supere en población a China?
2) ¿En torno a cuánto se estima la población mundial para el año 2040 y 2050? ¿Le parecen razonable estas estimaciones?
What is the current state of web analytics tools and their usage today? - and to what extent should we expect today to provide us comfort for the future.
Darstellung der Ziele, Zielgruppen, Inhalte und Ablauf des Trainingsmoduls Projektmanagement im Rahmen der Trainings für das Strategische Marketing von Winfried Kempfle Marketing Services
Memoria/Tutorial sobre la implementación y correcta configuración de un sistema de logs centralizados y monitorizados automáticamente por el sistema. Se enviarán por correo electrónico resúmenes.
Nursery management, Green goods industry cultural,l integration Growing peopl...Salvador Zamudio
This presentation provides a cursory review of our cultural integration program in the Green Goods industry. It explains some of the cultural tendencies most likely to exist with some Hispanic workers in the field. .
Das 11. internationale MitOst-Festival bringt vom 9. bis zum 13. Oktober junge Menschen aus über 20 Ländern in Leipzig zusammen. Seit 2003 findet das Festival jedes Jahr in einer anderen europäischen Stadt statt und versteht sich als eine internationale Netzwerk- und Weiterbildungsplattform. In diesem Jahr lädt der Verein MitOst nach Leipzig ein.
Das neue Schauspiel Leipzig wird im Oktober zur Festivalzentrale. Vier Tage lang organisiert das Festivalteam vor Ort gemeinsam mit NGOs und Leipziger Kulturinstitutionen ein umfassendes Kultur- und Fortbildungsprogramm. Ein Rahmenprogramm aus Filmvorführungen, Ausstellungen, Diskussionen, Lesungen, Stadtführungen, Konzerten und Tanzabenden bringt den MitOst-Geist nach Leipzig; verbindet MitOst-Mitglieder, Partnerorganisationen und Leipzigerinnen und Leipziger. Das MitOst-Festival in Leipzig fördert aktive Bürgerschaft, europäische Identität, Solidarität und Toleranz. Zur Teilnahme sind alle eingeladen, die sich für den kulturellen und zivilgesellschaftlichen Austausch in Europa und seinen Nachbarländern interessieren.
Das Festival findet seit 2003 jedes Jahr in einer anderen Stadt statt. Wir freuen uns, dass nach Pécs, Vilnius, Breslau, Temeswar, Görlitz-Zgorzelec, Uzhhorod, Danzig, Perm, Budweis und Ruse im Jahr 2013 Leipzig unsere Gastgeberstadt sein wird.
Darstellung der Ziele, Zielgruppen, Inhalte und Ablauf des Trainingsmoduls Projektmanagement im Rahmen der Trainings für das Strategische Marketing von Winfried Kempfle Marketing Services
Memoria/Tutorial sobre la implementación y correcta configuración de un sistema de logs centralizados y monitorizados automáticamente por el sistema. Se enviarán por correo electrónico resúmenes.
Nursery management, Green goods industry cultural,l integration Growing peopl...Salvador Zamudio
This presentation provides a cursory review of our cultural integration program in the Green Goods industry. It explains some of the cultural tendencies most likely to exist with some Hispanic workers in the field. .
Das 11. internationale MitOst-Festival bringt vom 9. bis zum 13. Oktober junge Menschen aus über 20 Ländern in Leipzig zusammen. Seit 2003 findet das Festival jedes Jahr in einer anderen europäischen Stadt statt und versteht sich als eine internationale Netzwerk- und Weiterbildungsplattform. In diesem Jahr lädt der Verein MitOst nach Leipzig ein.
Das neue Schauspiel Leipzig wird im Oktober zur Festivalzentrale. Vier Tage lang organisiert das Festivalteam vor Ort gemeinsam mit NGOs und Leipziger Kulturinstitutionen ein umfassendes Kultur- und Fortbildungsprogramm. Ein Rahmenprogramm aus Filmvorführungen, Ausstellungen, Diskussionen, Lesungen, Stadtführungen, Konzerten und Tanzabenden bringt den MitOst-Geist nach Leipzig; verbindet MitOst-Mitglieder, Partnerorganisationen und Leipzigerinnen und Leipziger. Das MitOst-Festival in Leipzig fördert aktive Bürgerschaft, europäische Identität, Solidarität und Toleranz. Zur Teilnahme sind alle eingeladen, die sich für den kulturellen und zivilgesellschaftlichen Austausch in Europa und seinen Nachbarländern interessieren.
Das Festival findet seit 2003 jedes Jahr in einer anderen Stadt statt. Wir freuen uns, dass nach Pécs, Vilnius, Breslau, Temeswar, Görlitz-Zgorzelec, Uzhhorod, Danzig, Perm, Budweis und Ruse im Jahr 2013 Leipzig unsere Gastgeberstadt sein wird.
Chapter 2 Market forces Supply & DemandThis chapter includes f.docxarnit1
Chapter 2: Market forces Supply & Demand
This chapter includes four important elements:
1. A “change in quantity” demanded or supplied as a result of a change in the current price.
This is a movement along the demand or supply curve. This helps us understand the slope of demand or supply with respect to the price and then estimate their own price elasticities.
2. A “shift or change in the demand or supply” as a result of a change in a relevant “factor other” than the current price. This change represents a change in the entire demand or supply or a shift. Understanding the factors that shift the demand or supply help us specify and estimate a demand or supply equation and estimate the other factors’ elasticities
How do we distinguish a “change in quantity demanded or supplied” from a “change in demand or supply”? If the factor that changes is on any of the axes (such as the current price is on the vertical axis), then there is a “change in quantity demanded or supplied”. But if the change is in a factor that is not on any of the axes such as income or cost of production, then there is a “shift or change in demand or supply”.
The student should define the slope of direct demand or supply with respect to current price as “change in quantity over change in price”. Not the other way!
Example:
(Direct) demand: Qdx = 6,060 – 3Px. Slope of demand = ∆Q/∆P = -3
Inverse demand: Px = 2020 -1/3Qdx. Slope of inverse demand = ∆P/∆Q= -1/3
3. Consumer and producer surplus
What is the usefulness of calculating the consumer surplus for the manager? The manager can use it in price discrimination and in valuing full economic prices. What’s the usefulness of knowing the producer surplus? The producer can use it to bargain with the distributor over the surplus above minimum cost of producing the good accruing to the distributor.
4. Market equilibrium and disequilibrium (or price restrictions)
“Market equilibrium” means supply equals demand and there is no surplus or shortage. This helps determine equilibrium price and quantity.
“Market disequilibrium” means that supply and demand do not intersect or are not equal at any price in the market. In this case, we have either a surplus (quantity supplied exceeds quantity demanded) or a shortage (quantity demanded exceeds quantity supplied). This helps us determine the size of shortage or surplus.
When a government intervenes in the market and buys the surplus to set a price above the equilibrium price, then there is a “price floor” as is the case with agricultural products.
If the government issues a decree and sets the price below the equilibrium price then there is a “price ceiling or control” which leads to shortages. Some governments set a rent control for apartments.
THE SUPPLY FUNCTION
Supply function and Shifts in Market Supply
Supply Specification: The simple supply equation is defined as:
Qs = a + bP
and the slope with the respect to the price ∆Q/∆P is positive. That is the supply curve is ...
This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.
Synthetic Fiber Construction in lab .pptxPavel ( NSTU)
Synthetic fiber production is a fascinating and complex field that blends chemistry, engineering, and environmental science. By understanding these aspects, students can gain a comprehensive view of synthetic fiber production, its impact on society and the environment, and the potential for future innovations. Synthetic fibers play a crucial role in modern society, impacting various aspects of daily life, industry, and the environment. ynthetic fibers are integral to modern life, offering a range of benefits from cost-effectiveness and versatility to innovative applications and performance characteristics. While they pose environmental challenges, ongoing research and development aim to create more sustainable and eco-friendly alternatives. Understanding the importance of synthetic fibers helps in appreciating their role in the economy, industry, and daily life, while also emphasizing the need for sustainable practices and innovation.
How to Make a Field invisible in Odoo 17Celine George
It is possible to hide or invisible some fields in odoo. Commonly using “invisible” attribute in the field definition to invisible the fields. This slide will show how to make a field invisible in odoo 17.
June 3, 2024 Anti-Semitism Letter Sent to MIT President Kornbluth and MIT Cor...Levi Shapiro
Letter from the Congress of the United States regarding Anti-Semitism sent June 3rd to MIT President Sally Kornbluth, MIT Corp Chair, Mark Gorenberg
Dear Dr. Kornbluth and Mr. Gorenberg,
The US House of Representatives is deeply concerned by ongoing and pervasive acts of antisemitic
harassment and intimidation at the Massachusetts Institute of Technology (MIT). Failing to act decisively to ensure a safe learning environment for all students would be a grave dereliction of your responsibilities as President of MIT and Chair of the MIT Corporation.
This Congress will not stand idly by and allow an environment hostile to Jewish students to persist. The House believes that your institution is in violation of Title VI of the Civil Rights Act, and the inability or
unwillingness to rectify this violation through action requires accountability.
Postsecondary education is a unique opportunity for students to learn and have their ideas and beliefs challenged. However, universities receiving hundreds of millions of federal funds annually have denied
students that opportunity and have been hijacked to become venues for the promotion of terrorism, antisemitic harassment and intimidation, unlawful encampments, and in some cases, assaults and riots.
The House of Representatives will not countenance the use of federal funds to indoctrinate students into hateful, antisemitic, anti-American supporters of terrorism. Investigations into campus antisemitism by the Committee on Education and the Workforce and the Committee on Ways and Means have been expanded into a Congress-wide probe across all relevant jurisdictions to address this national crisis. The undersigned Committees will conduct oversight into the use of federal funds at MIT and its learning environment under authorities granted to each Committee.
• The Committee on Education and the Workforce has been investigating your institution since December 7, 2023. The Committee has broad jurisdiction over postsecondary education, including its compliance with Title VI of the Civil Rights Act, campus safety concerns over disruptions to the learning environment, and the awarding of federal student aid under the Higher Education Act.
• The Committee on Oversight and Accountability is investigating the sources of funding and other support flowing to groups espousing pro-Hamas propaganda and engaged in antisemitic harassment and intimidation of students. The Committee on Oversight and Accountability is the principal oversight committee of the US House of Representatives and has broad authority to investigate “any matter” at “any time” under House Rule X.
• The Committee on Ways and Means has been investigating several universities since November 15, 2023, when the Committee held a hearing entitled From Ivory Towers to Dark Corners: Investigating the Nexus Between Antisemitism, Tax-Exempt Universities, and Terror Financing. The Committee followed the hearing with letters to those institutions on January 10, 202
Operation “Blue Star” is the only event in the history of Independent India where the state went into war with its own people. Even after about 40 years it is not clear if it was culmination of states anger over people of the region, a political game of power or start of dictatorial chapter in the democratic setup.
The people of Punjab felt alienated from main stream due to denial of their just demands during a long democratic struggle since independence. As it happen all over the word, it led to militant struggle with great loss of lives of military, police and civilian personnel. Killing of Indira Gandhi and massacre of innocent Sikhs in Delhi and other India cities was also associated with this movement.
Read| The latest issue of The Challenger is here! We are thrilled to announce that our school paper has qualified for the NATIONAL SCHOOLS PRESS CONFERENCE (NSPC) 2024. Thank you for your unwavering support and trust. Dive into the stories that made us stand out!
A Strategic Approach: GenAI in EducationPeter Windle
Artificial Intelligence (AI) technologies such as Generative AI, Image Generators and Large Language Models have had a dramatic impact on teaching, learning and assessment over the past 18 months. The most immediate threat AI posed was to Academic Integrity with Higher Education Institutes (HEIs) focusing their efforts on combating the use of GenAI in assessment. Guidelines were developed for staff and students, policies put in place too. Innovative educators have forged paths in the use of Generative AI for teaching, learning and assessments leading to pockets of transformation springing up across HEIs, often with little or no top-down guidance, support or direction.
This Gasta posits a strategic approach to integrating AI into HEIs to prepare staff, students and the curriculum for an evolving world and workplace. We will highlight the advantages of working with these technologies beyond the realm of teaching, learning and assessment by considering prompt engineering skills, industry impact, curriculum changes, and the need for staff upskilling. In contrast, not engaging strategically with Generative AI poses risks, including falling behind peers, missed opportunities and failing to ensure our graduates remain employable. The rapid evolution of AI technologies necessitates a proactive and strategic approach if we are to remain relevant.
12. Market Equilibrium
An
example of calculating a market
equilibrium when the market demand
and supply curves are linear.
D(p ) = a − bp
S(p ) = c + dp
16. Market Equilibrium
D(p ) = a − bp
S(p ) = c + dp
At the equilibrium price p*, D(p*) = S(p*).
That is,
a − bp* = c + dp*
17. Market Equilibrium
D(p ) = a − bp
S(p ) = c + dp
At the equilibrium price p*, D(p*) = S(p*).
That is,
a − bp* = c + dp*
which gives
a−c
p =
b+d
*
18. Market Equilibrium
D(p ) = a − bp
S(p ) = c + dp
At the equilibrium price p*, D(p*) = S(p*).
That is,
a − bp* = c + dp*
which gives
a−c
p =
b+d
*
ad + bc
and q = D(p ) = S(p ) =
.
b+d
*
*
*
20. Market Equilibrium
Can
we calculate the market
equilibrium using the inverse market
demand and supply curves?
21. Market Equilibrium
Can
we calculate the market
equilibrium using the inverse market
demand and supply curves?
Yes, it is the same calculation.
22. Market Equilibrium
a−q
−1
q = D(p ) = a − bp ⇔ p =
= D ( q),
b
the equation of the inverse market
demand curve. And
−c+q
q = S(p ) = c + dp ⇔ p =
= S−1 ( q),
d
the equation of the inverse market
supply curve.
27. Market Equilibrium
p=D
−1
a−q
−c+q
−1
( q) =
.
and p = S ( q) =
d
b
At the equilibrium quantity q*, D-1(p*) = S-1(p*).
That is,
a − q* − c + q*
=
b
d
* ad + bc
which gives q =
b+d
28. Market Equilibrium
p=D
−1
a−q
−c+q
−1
( q) =
.
and p = S ( q) =
d
b
At the equilibrium quantity q*, D-1(p*) = S-1(p*).
That is,
a − q* − c + q*
=
b
d
* ad + bc
which gives q =
b+d
*
and p = D
−1
*
(q ) = S
−1
a−c
(q ) =
.
b+d
*
30. Market Equilibrium
Two
special cases:
quantity supplied is fixed,
independent of the market price,
and
quantity supplied is extremely
sensitive to the market price.
36. Market Equilibrium
Market
p
demand
p* =
(a-c)/b
Market quantity supplied is
fixed, independent of price.
S(p) = c+dp, so d=0
and S(p) ≡ c.
p* = D-1(q*); that is,
p* = (a-c)/b.
D-1(q) = (a-q)/b
a − c q* = c
p =
b+d
* ad + bc
q =
b+d
*
q
37. Market Equilibrium
Market
p
demand
p* =
(a-c)/b
Market quantity supplied is
fixed, independent of price.
S(p) = c+dp, so d=0
and S(p) ≡ c.
p* = D-1(q*); that is,
p* = (a-c)/b.
D-1(q) = (a-q)/b
q
a − c q* = c
p =
b+d
* ad + bc with d = 0 give
q =
b+d
*
a−c
p =
b
*
q* = c.
38. Market Equilibrium
Two
special cases are
when quantity supplied is fixed,
independent of the market price,
and
when quantity supplied is
extremely sensitive to the market
price.
44. Quantity Taxes
A
quantity tax levied at a rate of $t is
a tax of $t paid on each unit traded.
If the tax is levied on sellers then it is
an excise tax.
If the tax is levied on buyers then it is
a sales tax.
45. Quantity Taxes
What
is the effect of a quantity tax on
a market’s equilibrium?
How are prices affected?
How is the quantity traded affected?
Who pays the tax?
How are gains-to-trade altered?
46. Quantity Taxes
A
tax rate t makes the price paid by
buyers, pb, higher by t from the price
received by sellers, ps.
pb − ps = t
47. Quantity Taxes
Even
with a tax the market must
clear.
I.e. quantity demanded by buyers at
price pb must equal quantity supplied
by sellers at price ps.
D(pb ) = S( ps )
48. Quantity Taxes
D(pb ) = S( ps )
pb − ps = t
and
describe the market’s equilibrium.
Notice these conditions apply no
matter if the tax is levied on sellers or on
buyers.
49. Quantity Taxes
D(pb ) = S( ps )
pb − ps = t
and
describe the market’s equilibrium.
Notice that these two conditions apply no
matter if the tax is levied on sellers or on
buyers.
Hence, a sales tax rate $t has the
same effect as an excise tax rate $t.
50. Quantity Taxes & Market Equilibrium
Market
p
demand
Market
supply
No tax
p*
q*
D(p), S(p)
51. Quantity Taxes & Market Equilibrium
Market
p
demand
Market
supply
$t
p*
q*
An excise tax
raises the market
supply curve by $t
D(p), S(p)
52. Quantity Taxes & Market Equilibrium
Market
p
demand
Market
supply
$t
pb
p*
qt q*
An excise tax
raises the market
supply curve by $t,
raises the buyers’
price and lowers the
quantity traded.
D(p), S(p)
53. Quantity Taxes & Market Equilibrium
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
An excise tax
raises the market
supply curve by $t,
raises the buyers’
price and lowers the
quantity traded.
D(p), S(p)
And sellers receive only ps = pb - t.
54. Quantity Taxes & Market Equilibrium
Market
p
demand
Market
supply
No tax
p*
q*
D(p), S(p)
55. Quantity Taxes & Market Equilibrium
Market
p
demand
Market
supply
p*
An sales tax lowers
the market demand
curve by $t
$t
q*
D(p), S(p)
56. Quantity Taxes & Market Equilibrium
Market
p
demand
p*
ps
Market
supply
$t
qt q*
An sales tax lowers
the market demand
curve by $t, lowers
the sellers’ price and
reduces the quantity
traded.
D(p), S(p)
57. Quantity Taxes & Market Equilibrium
Market
p
demand
pb
p*
ps
Market
supply
$t
qt q*
An sales tax lowers
the market demand
curve by $t, lowers
the sellers’ price and
reduces the quantity
traded.
D(p), S(p)
And buyers pay pb = ps + t.
58. Quantity Taxes & Market Equilibrium
Market
p
demand
Market
supply
$t
pb
p*
ps
$t
qt q*
A sales tax levied at
rate $t has the same
effects on the
market’s equilibrium
as does an excise tax
levied at rate $t.
D(p), S(p)
59. Quantity Taxes & Market Equilibrium
Who
pays the tax of $t per unit
traded?
The division of the $t between
buyers and sellers is the incidence of
the tax.
63. Quantity Taxes & Market Equilibrium
Market
Market
p
demand
supply
Tax paid by
buyers
pb
p*
ps
Tax paid by
sellers
qt q*
D(p), S(p)
64. Quantity Taxes & Market Equilibrium
E.g.
suppose the market demand and
supply curves are linear.
D(pb ) = a − bpb
S( ps ) = c + dps
65. Quantity Taxes & Market Equilibrium
D(pb ) = a − bpb and S(ps ) = c + dps .
66. Quantity Taxes & Market Equilibrium
D(pb ) = a − bpb and S(ps ) = c + dps .
With the tax, the market equilibrium satisfies
pb = ps + t and D(pb ) = S(ps ) so
pb = ps + t and a − bpb = c + dps .
67. Quantity Taxes & Market Equilibrium
D(pb ) = a − bpb and S(ps ) = c + dps .
With the tax, the market equilibrium satisfies
pb = ps + t and D(pb ) = S(ps ) so
pb = ps + t and a − bpb = c + dps .
Substituting for pb gives
a − c − bt
a − b( ps + t ) = c + dps ⇒ps =
.
b +d
68. Quantity Taxes & Market Equilibrium
a − c − bt
ps =
b +d
and pb = ps + t give
a − c + dt
pb =
b +d
The quantity traded at equilibrium is
qt = D( pb ) = S( ps )
ad + bc − bdt
= a + bpb =
.
b +d
69. Quantity Taxes & Market Equilibrium
a − c − bt
ps =
b +d
a − c + dt
pb =
b +d
ad + bc − bdt
q =
b +d
t
a −c
= p *, the
As t → 0, ps and pb →
b +d
equilibrium price if
ad + bc
,
there is no tax (t = 0) and qt →
b +d
the quantity traded at equilibrium
when there is no tax.
70. Quantity Taxes & Market Equilibrium
a − c − bt
ps =
b +d
a − c + dt
pb =
b +d
As t increases,
ad + bc − bdt
q =
b +d
t
ps falls,
pb rises,
and
qt falls.
71. Quantity Taxes & Market Equilibrium
a − c − bt
ps =
b +d
a − c + dt
pb =
b +d
ad + bc − bdt
q =
b +d
t
The tax paid per unit by the buyer is
a − c + dt a − c
dt
pb − p =
−
=
.
b +d
b +d b +d
*
72. Quantity Taxes & Market Equilibrium
a − c − bt
ps =
b +d
a − c + dt
pb =
b +d
ad + bc − bdt
q =
b +d
t
The tax paid per unit by the buyer is
a − c + dt a − c
dt
pb − p =
−
=
.
b +d
b +d b +d
*
The tax paid per unit by the seller is
a − c a − c − bt
bt
p − ps =
−
=
.
b +d
b +d
b +d
*
73. Quantity Taxes & Market Equilibrium
a − c − bt
ps =
b +d
a − c + dt
pb =
b +d
ad + bc − bdt
q =
b +d
t
The total tax paid (by buyers and sellers
combined) is
ad + bc − bdt
T = tq = t
.
b +d
t
74. Tax Incidence and Own-Price
Elasticities
The
incidence of a quantity tax
depends upon the own-price
elasticities of demand and supply.
75. Tax Incidence and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
D(p), S(p)
76. Tax Incidence and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
∆q
Change to buyers’
price is pb - p*.
Change to quantity
demanded is ∆q.
D(p), S(p)
77. Tax Incidence and Own-Price
Elasticities
Around p = p* the own-price elasticity
of demand is approximately
∆q
*
q
εD ≈
*
pb − p
*
p
78. Tax Incidence and Own-Price
Elasticities
Around p = p* the own-price elasticity
of demand is approximately
∆q
*
q
εD ≈
pb − p*
p*
⇒ pb − p* ≈
∆q × p*
ε D × q*
.
79. Tax Incidence and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
D(p), S(p)
80. Tax Incidence and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
∆q
Change to sellers’
price is ps - p*.
Change to quantity
demanded is ∆q.
D(p), S(p)
81. Tax Incidence and Own-Price
Elasticities
Around p = p* the own-price elasticity
of supply is approximately
∆q
*
q
εS ≈
*
ps − p
*
p
82. Tax Incidence and Own-Price
Elasticities
Around p = p* the own-price elasticity
of supply is approximately
∆q
*
q
εS ≈
*
ps − p
*
p
⇒ ps − p* ≈
∆q × p*
*
ε S× q
.
83. Tax Incidence and Own-Price
Elasticities
Market
Market
p
demand
supply
Tax paid by
buyers
pb
p*
ps
Tax paid by
sellers
qt q*
D(p), S(p)
84. Tax Incidence and Own-Price
Elasticities
Market
Market
p
demand
supply
Tax paid by
buyers
pb
p*
ps
Tax paid by
sellers
qt q*
Tax incidence =
D(p), S(p)
*
pb − p
*
p − ps
.
85. Tax Incidence and Own-Price
Elasticities
*
Tax incidence =
*
pb − p ≈
*
∆q × p
*
εD × q
.
pb − p
*
p − ps
.
*
ps − p ≈
*
∆q × p
*
ε S× q
.
86. Tax Incidence and Own-Price
Elasticities
*
Tax incidence =
*
pb − p ≈
So
*
∆q × p
*
εD × q
*
pb − p
*
p − ps
.
pb − p
*
p − ps
.
*
ps − p ≈
εS
≈ −
.
εD
*
∆q × p
*
ε S× q
.
87. Tax Incidence and Own-Price
Elasticities
*
Tax incidence is
pb − p
*
p − ps
εS
≈ −
.
εD
The fraction of a $t quantity tax paid
by buyers rises as supply becomes more
own-price elastic or as demand becomes
less own-price elastic.
88. Tax Incidence and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
As market demand
becomes less ownprice elastic, tax
incidence shifts more
to the buyers.
D(p), S(p)
89. Tax Incidence and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
As market demand
becomes less ownprice elastic, tax
incidence shifts more
to the buyers.
D(p), S(p)
90. Tax Incidence and Own-Price
Elasticities
Market
p
demand
pb
ps= p*
Market
supply
$t
qt = q*
As market demand
becomes less ownprice elastic, tax
incidence shifts more
to the buyers.
D(p), S(p)
91. Tax Incidence and Own-Price
Elasticities
Market
p
demand
pb
ps= p*
Market
supply
$t
As market demand
becomes less ownprice elastic, tax
incidence shifts more
to the buyers.
D(p), S(p)
qt = q*
When ε D = 0, buyers pay the entire tax, even
though it is levied on the sellers.
92. Tax Incidence and Own-Price
Elasticities
*
Tax incidence is
pb − p
*
p − ps
εS
≈ −
.
εD
Similarly, the fraction of a $t quantity
tax paid by sellers rises as supply
becomes less own-price elastic or as
demand becomes more own-price elastic.
93. Deadweight Loss and Own-Price
Elasticities
A
quantity tax imposed on a
competitive market reduces the
quantity traded and so reduces
gains-to-trade (i.e. the sum of
Consumers’ and Producers’
Surpluses).
The lost total surplus is the tax’s
deadweight loss, or excess burden.
94. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
No tax
p*
q*
D(p), S(p)
95. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
p*
Market
supply
No tax
CS
q*
D(p), S(p)
96. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
No tax
p*
PS
q*
D(p), S(p)
97. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
p*
Market
supply
No tax
CS
PS
q*
D(p), S(p)
98. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
p*
Market
supply
No tax
CS
PS
q*
D(p), S(p)
99. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb CS
p*
ps PS
qt q*
The tax reduces
both CS and PS
D(p), S(p)
100. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb CS
p* Tax
ps PS
qt q*
The tax reduces
both CS and PS,
transfers surplus
to government
D(p), S(p)
101. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb CS
p* Tax
ps PS
qt q*
The tax reduces
both CS and PS,
transfers surplus
to government
D(p), S(p)
102. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb CS
p* Tax
ps PS
qt q*
The tax reduces
both CS and PS,
transfers surplus
to government
D(p), S(p)
103. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb CS
p* Tax
ps PS
qt q*
The tax reduces
both CS and PS,
transfers surplus
to government,
and lowers total
surplus.
D(p), S(p)
104. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb CS
p* Tax
ps PS
Deadweight loss
qt q*
D(p), S(p)
105. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
Deadweight loss
qt q*
D(p), S(p)
106. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
Deadweight loss falls
as market demand
becomes less ownprice elastic.
D(p), S(p)
107. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
Market
supply
$t
pb
p*
ps
qt q*
Deadweight loss falls
as market demand
becomes less ownprice elastic.
D(p), S(p)
108. Deadweight Loss and Own-Price
Elasticities
Market
p
demand
pb
ps= p*
Market
supply
$t
Deadweight loss falls
as market demand
becomes less ownprice elastic.
D(p), S(p)
qt = q*
When ε D = 0, the tax causes no deadweight
loss.
109. Deadweight Loss and Own-Price
Elasticities
Deadweight
loss due to a quantity
tax rises as either market demand or
market supply becomes more ownprice elastic.
If either ε D = 0 or ε S = 0 then the
deadweight loss is zero.