difficult topics in microeconomics: tax analysis luis fernandez and teresa fischer
TRANSCRIPT
![Page 1: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/1.jpg)
Difficult Topics in Microeconomics: Tax analysis
Luis Fernandez
And
Teresa Fischer
![Page 2: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/2.jpg)
Teaching Objectives of Tax Analysis
Application of supply and demand analysis. Refute the “fly-paper theory” of tax incidence. Determine the welfare effects of a well-
known type of public policy - taxation. Relate tax incidence to demand and supply
elasticities.
![Page 3: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/3.jpg)
Analysis of a $1/unit excise tax
Typical Supply and Demand Diagram
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
![Page 4: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/4.jpg)
A $1/unit excise tax is enacted
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
![Page 5: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/5.jpg)
What happens to the demand curve?
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
![Page 6: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/6.jpg)
Nothing happens to the demand curve!
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
![Page 7: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/7.jpg)
What happens to the supply curve?
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
![Page 8: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/8.jpg)
The supply curve shifts up by $1/unit!
![Page 9: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/9.jpg)
Result: price paid by buyers goes up and quantity sold goes down
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
![Page 10: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/10.jpg)
Result: price paid by buyers goes up by LESS than the tax!
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
![Page 11: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/11.jpg)
Welfare Analysis
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
Producer surplus
Consumer surplus
![Page 12: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/12.jpg)
Welfare Effect of tax: consumer surplus falls
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
New consumer surplus
Old consumer surplus
![Page 13: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/13.jpg)
Welfare Effect of tax: producer surplus falls
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
New producer surplus
Old producer surplus
![Page 14: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/14.jpg)
Welfare effect of tax:tax revenue goes up
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
Tax revenue
![Page 15: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/15.jpg)
Welfare effect of tax:fall in surplus is greater than tax
revenue
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
DemandTax revenue
Consumer Surplus
Producer Surplus
![Page 16: Difficult Topics in Microeconomics: Tax analysis Luis Fernandez And Teresa Fischer](https://reader035.vdocuments.mx/reader035/viewer/2022071806/56649d145503460f949e8dd1/html5/thumbnails/16.jpg)
Welfare effect of tax: total welfare goes down
$0
$1
$2
$3
$4
$5
$6
0 1 2 3 4 5 6 7 8 9 10 11
Quantity Supplied and Demanded
Pri
ce
(p
aid
by
bu
ye
rs)
Supply
Demand
“Dead-weight” loss of tax
Consumer and Producer Surplus and Tax Revenue