MICRO 2 p4 government tax (1) được đánh số

• The price buyers pay is now $1.50 higher than the market price P... The effective price received by sellers is $0.40 per bottle less than it was before the taxa. increases sellers’ co

• Price Control: Price Ceiling and Price Floor

The tax effectively raises sellers’ costs

by $1.50 per pizza.

Sellers will supply 500 pizzas only if P

rises to $11.50, to compensate for this cost increase

Hence, a tax on sellers shifts the S

curve up by the amount of the tax

S1P

• Hence, a tax on buyers shifts the D

curve down by the amount of the tax.

• The price buyers pay is now $1.50 higher

than the market price P

• P would have to fall by $1.50 to make

buyers willing to buy same Q as before

• E.g., if P falls from $10.00 to $8.50,

buyers are still willing to purchase 500 pizzas

Effects of a $1.50 per unit tax on buyers

how the burden of a tax is shared among market participants

• The effects on P and Q, and the tax incidence are the same

whether the tax is imposed on buyers or sellers!

Q

D1

$10.00

500 450

1 When a tax is placed on the sellers of a product,

2 Suppose sellers of perfume are required to send

$1.00 to the government for every bottle of perfume

they sell Further, suppose this tax causes the price

paid by buyers of perfume to rise by $0.60 per bottle

Which of the following statements is correct?

a The effective price received by sellers is $0.40 per

bottle less than it was before the tax

b Sixty percent of the burden of the tax falls on sellers

c This tax causes the demand curve for perfume to shift

downward by $1.00 at each quantity of perfume

3 A tax levied on the sellers of blueberries

a increases sellers’ costs, reduces profits, and

shifts the supply curve up

b increases sellers’ costs, reduces profits, and

shifts the supply curve down

c decreases sellers’ costs, increases profits, and

shifts the supply curve up

d decreases sellers’ costs, increases profits, and

shifts the supply curve down

4 When a tax is placed on the sellers of cell

phones, the size of the cell phone market

a and the effective price received by sellers both

P

Q D

S

Q D

S

St

PS

CASE 2: Demand is more elastic than supply

than sellers to leave the market

the burden of the tax.

P

Q D

P

Q D

S

PS

PBP*

5 When a tax is placed on the buyers of lemonade, the

a sellers bear the entire burden of the tax.

b buyers bear the entire burden of the tax.

c burden of the tax will be always be equally divided

between the buyers and the sellers.

d burden of the tax will be shared by the buyers and the

sellers, but the division of the burden is not always

40 50 60 70 80 90 100 110 120 130 140

40 50 60 70 80 90 100 110 120 130 140

a Government imposes tax on the sellers, new supply curve is Qs = P – T

Find the new market equilibrium, seller price, buyer price, tax revenue, dead weight loss by T.

Replace Q T to supply

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190

0 10 20 30 40 50 60 70 80 90 100 110 120 130 140 150 160 170 180 190

10 As the figure is drawn, who sends the tax

payment to the government?

a The buyers send the tax payment

b The sellers send the tax payment

c A portion of the tax payment is sent by the

buyers, and the remaining portion is sent

by the sellers

d The question of who sends the tax payment

cannot be determined from the graph

11 Buyers pay how much of the tax per unit?

a $0.50

b $1.50

c $3.00

d $5.00

12 How much tax revenue does this tax

generate for the government?

a $80

b $60

c $15