Post on 30-Dec-2015
transcript
The IncidenceThe Incidenceof Taxationof Taxation
The incidence of taxationThe incidence of taxation
Indirect taxesIndirect taxes
S
P
Q O
Effect of a tax on the supply curveEffect of a tax on the supply curve
S + specific tax
S
amount ofspecific tax
P
Q O
Effect of a tax on the supply curveEffect of a tax on the supply curve
S + ad valorem tax
S
P
Q O
Effect of a tax on the supply curveEffect of a tax on the supply curve
The incidence of taxationThe incidence of taxation
Effect of indirect taxes on market price
and quantity
Effect of indirect taxes on market price
and quantity
S
P
Q O
P1
Q1
D
Effect of a tax on price and quantityEffect of a tax on price and quantity
S + tax
S
O
P1 + tax
P1
P2
Q1Q2
D
P
Q
Effect of a tax on price and quantityEffect of a tax on price and quantity
The incidence of taxationThe incidence of taxation
The incidence of indirect taxes: effects of different
demand and supply elasticities
The incidence of indirect taxes: effects of different
demand and supply elasticities
S + tax
S
O
P1
Q1
D
P
Q
Incidence of tax: inelastic demandIncidence of tax: inelastic demand
S + tax
S
O
P1
P2
Q2 Q1
D
P
Q
Incidence of tax: inelastic demandIncidence of tax: inelastic demand
S + tax
S
O
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
P2 - t P2 - t PRODUCERS’ SHAREPRODUCERS’ SHARE
P
Q
Incidence of tax: inelastic demandIncidence of tax: inelastic demand
S + tax
S
O
P1
Q1
D
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
S + tax
S
O
P1
P2
Q1
D
Q2
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
S + tax
S
O
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
S + tax
S
O
P2 - t
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
PRODUCERS’ SHARE
PRODUCERS’ SHARE
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
S + tax
S
O
P1
Q1
D
P
Q
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
S + tax
S
O
P1
P2
Q1
D
Q2
P
Q
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
S + tax
S
O
P1
P2
Q2 Q1
D
P
Q
CONSUMERS’ SHARECONSUMERS’ SHARE
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
S + tax
S
O
P2 - t
P1
P2
Q2 Q1
D
P
Q
CONSUMERS’ SHARECONSUMERS’ SHARE
PRODUCERS’ SHAREPRODUCERS’ SHARE
Incidence of tax: inelastic supplyIncidence of tax: inelastic supply
S + taxP
Q O
P1
Q1
D
S
Incidence of tax: elastic supplyIncidence of tax: elastic supply
S + taxP
Q O
P1
P2
Q1
D
Q2
S
Incidence of tax: elastic supplyIncidence of tax: elastic supply
S + taxP
Q O
P1
P2
Q2 Q1
D
SCONSUMERS’
SHARECONSUMERS’
SHARE
Incidence of tax: elastic supplyIncidence of tax: elastic supply
S + taxP
Q O
P2 - t
P1
P2
Q2 Q1
D
SCONSUMERS’
SHARECONSUMERS’
SHARE
PRODUCERS’ SHARE
PRODUCERS’ SHARE
Incidence of tax: elastic supplyIncidence of tax: elastic supply
S + tax
S
O
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
P2 - t P2 - t PRODUCERS’ SHAREPRODUCERS’ SHARE
P
Q
Incidence of tax: inelastic demandIncidence of tax: inelastic demandS + tax
S
O
P2 - t
P1
P2
Q2 Q1
D
CONSUMERS’SHARE
CONSUMERS’SHARE
PRODUCERS’ SHARE
PRODUCERS’ SHARE
P
Q
Incidence of tax: elastic demandIncidence of tax: elastic demand
S + tax
S
O
P2 - t
P1
P2
Q2 Q1
D
P
Q
CONSUMERS’ SHARECONSUMERS’ SHARE
PRODUCERS’ SHAREPRODUCERS’ SHARE
Incidence of tax: inelastic supplyIncidence of tax: inelastic supplyS + tax
PRODUCERS’ SHARE
PRODUCERS’ SHARE
P
Q O
P2 - t
P1
P2
Q2 Q1
D
SCONSUMERS’
SHARECONSUMERS’
SHARE
Incidence of tax: elastic supplyIncidence of tax: elastic supply
Conclusion: Using the four extremes of elasticity it is now possible to discuss the effects of putting a tax on any particular product with respect to: 1. Incidence: the more __________ is demand and the more _________ is supply the higher the incidence of a tax on consumers. The more elastic is demand and the more inelastic is supply the higher is the incidence of a tax on producers.t2. Government revenue: this will be greater the lower the elasticity of demand and the lower the elasticity of supply. 3. Resource allocation: will be most affected the higher is the elasticity of demand and the higher the elasticity of supply.