Quantity Taxes What is the effect of a quantity tax on a market's equilibrium? o How are prices affected? How is the quantity traded affected? Who pays the tax e How are gains-to-trade altered?
Quantity Taxes ◆What is the effect of a quantity tax on a market’s equilibrium? ◆How are prices affected? ◆How is the quantity traded affected? ◆Who pays the tax? ◆How are gains-to-trade altered?
Quantity Taxes .A tax rate t makes the price paid by buyers, pb, higher by t from the price received by sellers, p pb-ps=t
Quantity Taxes ◆A tax rate t makes the price paid by buyers, pb , higher by t from the price received by sellers, ps . pb p t − s =
Quantity Taxes &Even with a tax the market must clear .L.e. quantity demanded by buyers at price p, must equal quantity supplied by sellers at price p D(pb)=S(Ps)
Quantity Taxes ◆Even with a tax the market must clear. ◆I.e. quantity demanded by buyers at price pb must equal quantity supplied by sellers at price ps . D pb S ps ( ) = ( )
Quantity Taxes Pb-ps=t and D(pb)=s(ps) describe the market' s equilibrium Notice these conditions apply no matter if the tax is levied on sellers or on buyers
Quantity Taxes pb p t − s = D pb S ps and ( ) = ( ) describe the market’s equilibrium. Notice these conditions apply no matter if the tax is levied on sellers or on buyers
Quantity Taxes Pb-ps=t and D(pb)=s(ps) describe the market' s equilibrium Notice that these two conditions apply no matter if the tax is levied on sellers or on buyers Hence, a sales tax rate st has the same effect as an excise tax rate t
Quantity Taxes pb p t − s = D pb S ps and ( ) = ( ) describe the market’s equilibrium. Notice that these two conditions apply no matter if the tax is levied on sellers or on buyers. Hence, a sales tax rate $t has the same effect as an excise tax rate $t