indirect takes
↳
imposed on
spending to buy goods/services ; paid partly by consumers but are
paid to
the government by the producers
Taxes 4
price paid for Consumers
they
:
,
Excise Taxes General Taxes/VAT reduce their
spending on taxed goods-
imposed Taxes on
on
particular goods spending on ↓ Price received by producers , supply
and services
all/most gls · Excise Taxes
Change Resource Allocation
Ad Valorem Taxes
Reasons for Imposing Taxes
Specific Taxes ↳ A
fixed %
:
of the price of the gls
C ① Source of Government Revenue
fixed As P4 Amt of Tax4
a amt
of tax ,
② To
per unit of the gls sold discourage consumption of harmful goods
↳
however small &d
only the got Is better
off S, + Tax If it PEDL1 , only
=
(Pc Pp)
-
x &t ·
Tax per unit
③ Can be used to reduce Allocative
Ineffeciencies
Si ↳
Government
Revenue ~
(by correcting Negative Externalities)
Pa ↑ Producers receive Pc Consumers
from
but have to
pay Pc-P,
to the government , leaving A Government Revenue =
(After Tax)
pA them with Pp after payment of the tax Consumer Revenue -
Firm Revenue
Pp- & ek(9
*
-
Ot
*
4P
Pc4(Pc p ) ↑ 10 Consumers Worse
Off
:
are
-
,
D
)
*
Expenditure changes [(P
*
Consumer ,
&) -
(P xg
*
9+ 9 Firm's revenue falls [(P
*
x &* ) -(Ppx & t) :
Firms are worse
off
Pp-Pc =
Amount of Tax per unit
of output Undevallocation of resources to the
good (8+<*)
*
Revenue for Producers decreases by (P -Pc) Workers are worse
off (Output * Unemployment
=
:
S, + Tax
Initial CS =
a + b + c + d
Si Initial PS =
e + f +
gth
A
After the Incidence of Tax
Pa
b CS a lose b + C (To govern) + d (to welfare loss)
-
=
C d
pA e
q PS = e +
fth-lose g /To welfare loss)
f
Pp &
gout revenue =
e + b + c + f
h
Welfare Loss =
d +
g
=
Social
Smplus lost
D "due to *>
underallocation of goods (4 Dt)
*
At Ot would be better
9+ 9 :
MBSMC :
consumers
off if more
of the
good were
produced
↳
imposed on
spending to buy goods/services ; paid partly by consumers but are
paid to
the government by the producers
Taxes 4
price paid for Consumers
they
:
,
Excise Taxes General Taxes/VAT reduce their
spending on taxed goods-
imposed Taxes on
on
particular goods spending on ↓ Price received by producers , supply
and services
all/most gls · Excise Taxes
Change Resource Allocation
Ad Valorem Taxes
Reasons for Imposing Taxes
Specific Taxes ↳ A
fixed %
:
of the price of the gls
C ① Source of Government Revenue
fixed As P4 Amt of Tax4
a amt
of tax ,
② To
per unit of the gls sold discourage consumption of harmful goods
↳
however small &d
only the got Is better
off S, + Tax If it PEDL1 , only
=
(Pc Pp)
-
x &t ·
Tax per unit
③ Can be used to reduce Allocative
Ineffeciencies
Si ↳
Government
Revenue ~
(by correcting Negative Externalities)
Pa ↑ Producers receive Pc Consumers
from
but have to
pay Pc-P,
to the government , leaving A Government Revenue =
(After Tax)
pA them with Pp after payment of the tax Consumer Revenue -
Firm Revenue
Pp- & ek(9
*
-
Ot
*
4P
Pc4(Pc p ) ↑ 10 Consumers Worse
Off
:
are
-
,
D
)
*
Expenditure changes [(P
*
Consumer ,
&) -
(P xg
*
9+ 9 Firm's revenue falls [(P
*
x &* ) -(Ppx & t) :
Firms are worse
off
Pp-Pc =
Amount of Tax per unit
of output Undevallocation of resources to the
good (8+<*)
*
Revenue for Producers decreases by (P -Pc) Workers are worse
off (Output * Unemployment
=
:
S, + Tax
Initial CS =
a + b + c + d
Si Initial PS =
e + f +
gth
A
After the Incidence of Tax
Pa
b CS a lose b + C (To govern) + d (to welfare loss)
-
=
C d
pA e
q PS = e +
fth-lose g /To welfare loss)
f
Pp &
gout revenue =
e + b + c + f
h
Welfare Loss =
d +
g
=
Social
Smplus lost
D "due to *>
underallocation of goods (4 Dt)
*
At Ot would be better
9+ 9 :
MBSMC :
consumers
off if more
of the
good were
produced
