![]() Imagine a $1 tax on every barrel of apples that an apple farmer produces. The size of these changes depends on the price elasticities of demand and supply. ![]() You can see that as reductions in consumer surplus, reductions in producer surplus and deadweight loss. Note also, that when taxes on sales affect the equilibrium quantity, there are effects on economic welfare. In the tobacco example, the tax burden falls on the most inelastic side of the market. However, if one wants to predict which group will bear most of the burden, all one needs to do is examine the elasticity of demand and supply. Typically, the t ax incidence, or burden, falls both on the consumers and producers of the taxed good. Look closely at the graphs towards the end of the video to graphically see how different elasticities cause the tax incidence to shift. When the demand is inelastic, consumers pay more of the tax, but when demand is elastic, the burden falls on the producers. This video introduces the idea of the tax burden and demonstrates how taxes impact both consumers and producers.
0 Comments
Leave a Reply. |