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Principles Of Microeconomics (ECON 201) Chapter 8 The Costs Of Taxation

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Drexel University

Principles Of Microeconomics (ECON 201)

Chapter 8
The Cost of Taxation
Recall that when a per-unit tax (exercise tax) is imposed on a good:
 If the tax is levied on the buyers, then the demand curve shifts downward (to the left)
by the size of the tax
 If the tax is levied on sellers, then the supply curve shifts upward (to the left) by the
size of the tax
 In both cases there is the same outcome. The price paid by buyers rises, the price
received by sellers falls and the quantity sold decreases (the market for the good is
smaller)
 The tax burden is distributed between producers and consumers based on the
elasticities of supply and demand
To determine how an exercise tax affects market participants we determine:
 Total tax revenue for the government (public benefit)
 Consumer surplus with and without the tax
 Producer surplus with and without the tax

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Principles Of Microeconomics (ECON 201) Chapter 8 The Costs Of Taxation

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