Applying demand functions l.jpg
Advertisement
This presentation is the property of its rightful owner.
1 / 22

Applying Demand Functions PowerPoint PPT Presentation

Applying Demand Functions Imposing a Tax Price Consumers Pay S P o D Q o Q A tax $t is levied on sales of a product Imposing a Tax Price Consumers Pay S P o D Q o Q The supply curve shifts up by $t. Why? The price suppliers get is $t less than consumers pay Imposing a Tax

Download Presentation

Applying Demand Functions

An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -

Presentation Transcript


Applying demand functions l.jpg

Applying Demand Functions

Lectures in Microeconomics-Charles W. Upton


Imposing a tax l.jpg

Imposing a Tax

Price Consumers Pay

S

Po

D

Qo

Q

Applying Demand Functions


Imposing a tax3 l.jpg

A tax $t is levied on sales of a product

Imposing a Tax

Price Consumers Pay

S

Po

D

Qo

Q

Applying Demand Functions


Imposing a tax4 l.jpg

The supply curve shifts up by $t.

Why? The price suppliers get is $t less than consumers pay

Imposing a Tax

Price Consumers Pay

$t

S

Po

D

Qo

Q

Applying Demand Functions


What happens l.jpg

Quantity sold drops

What Happens

Price Consumers Pay

S

$t

P1

Po

P1-$t

D

Q1

Qo

Q

Applying Demand Functions


What happens6 l.jpg

Quantity sold drops

The price suppliers gets decreases.

What Happens

Price Consumers Pay

S

$t

P1

Po

P1-$t

D

Q1

Qo

Q

Applying Demand Functions


What happens7 l.jpg

Quantity sold drops

The price suppliers gets decreases.

The price consumers pay, tax included, rises.

What Happens

Price Consumers Pay

S

$t

P1

Po

P1-$t

D

Q1

Qo

Q

Applying Demand Functions


Suppose consumers pay l.jpg

A tax $t is levied on purchases of a product

Suppose Consumers Pay

Price Consumers Pay

S

Po

D

Qo

Q

Applying Demand Functions


Suppose consumers pay9 l.jpg

A tax $t is levied on purchases

The curve shifts down by $t.

The price consumers pay is $t more, tax included

Suppose Consumers Pay

Price Consumers Pay

S

Po

D

$t

Qo

Q

Applying Demand Functions


Suppose consumers pay10 l.jpg

A tax $t is levied on purchases

The quantity sold drops.

Suppose Consumers Pay

Price Consumers Pay

S

P1+$t

Po

P1

D

$t

Q1

Qo

Q

Applying Demand Functions


Suppose consumers pay11 l.jpg

A tax $t is levied on purchases

The quantity sold drops.

The price suppliers get decreases

Suppose Consumers Pay

Price Consumers Pay

S

P1+$t

Po

P1

D

$t

Q1

Qo

Q

Applying Demand Functions


Suppose consumers pay12 l.jpg

A tax $t is levied on purchases

The quantity sold drops.

The price suppliers get decreases

Suppose Consumers Pay

Price Consumers Pay

S

The price consumers pay, tax included, increases

P1+$t

Po

P1

D

$t

Q1

Qo

Q

Applying Demand Functions


Compare the two cases l.jpg

Does it make a difference?

Compare the two cases

Price Consumers Pay

S

S

Pc

Po

Ps

D

$t

Q1

Qo

Q

Applying Demand Functions


Compare the two cases14 l.jpg

Does it make a difference?

Lets combine the two effects

Compare the two cases

Price Consumers Pay

S

S

Pc

Po

Ps

D

$t

Q1

Qo

Q

Applying Demand Functions


Compare the two cases15 l.jpg

Does it make a difference?

Lets combine the two effects

Compare the two cases

Price Consumers Pay

S

S

Pc

Po

Shift in supply and demand curves is the same, $t

Ps

D

$t

Q1

Qo

Q

Applying Demand Functions


Compare the two cases16 l.jpg

Does it make a difference?

Lets combine the two effects

Compare the two cases

Price Consumers Pay

S

S

Pc

Po

Ps

Quantity Sold is the Same

D

$t

Q1

Qo

Q

Applying Demand Functions


Compare the two cases17 l.jpg

Does it make a difference?

Lets combine the two effects

Compare the two cases

Price Consumers Pay

S

S

Pc

Po

Ps

Net price to suppliers is the same

D

$t

Q1

Qo

Q

Applying Demand Functions


Compare the two cases18 l.jpg

Does it make a difference?

Lets combine the two effects

Compare the two cases

Price Consumers Pay

S

S

Pc

Po

Ps

Price to consumers is the same

D

$t

Q1

Qo

Q

Applying Demand Functions


Conclusion l.jpg

Conclusion

  • The incidence of a tax is independent of who actually pays the tax.

  • The actual split between demanders and suppliers depends on the slope of the supply and demand curves, not the legalities.

Applying Demand Functions


An old problem l.jpg

An Old Problem

  • The City of Kent is planning a tax on automobile sales.

  • One plan would levy the tax on dealers, the other on customers.

  • Which will have the greater effect on sales?

Applying Demand Functions


An old problem21 l.jpg

An Old Problem

  • The City of Kent is planning a tax on automobile sales.

  • One plan would levy the tax on dealers, the other on customers.

  • Which will have the greater effect on sales?

There is a difference? (Actually No)

Applying Demand Functions


Slide22 l.jpg

End

©2004 Charles W. Upton

Applying Demand Functions


  • Login