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Elasticity and Excise Taxes Who ends up paying for an excise tax?. 1. EXCISE TAX ON CIGARETTES. P. Demand- Inelastic Supply- Unitary. $10 8 6 5 4 2. S. CS. $2 TAX on Producers. D. 8. 10. Q. 2. EXCISE TAX ON CIGARETTES. P. S 1. $10 8 7 6 5 4 2. S. CS After.
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Elasticity and Excise TaxesWho ends up paying for an excise tax? 1
EXCISE TAX ON CIGARETTES P Demand- Inelastic Supply- Unitary $10 8 6 5 4 2 S CS $2 TAX on Producers D 8 10 Q 2
EXCISE TAX ON CIGARETTES P S1 $10 8 7 6 5 4 2 S CS After $6.50 =Pconsumers Amount Consumers Pay $2 TAX on Producers $4.50 = Pproducers Amount Producers Pay D 9 10 Q Quantity Doesn’t Fall VERY Much!!! 3
EXCISE TAX ON YACHTS P Demand- Elastic Supply- Unitary $10 8 6 5 4 2 S $2 TAX on Producers D 8 10 Q 4
EXCISE TAX ON YACHTS P S1 $10 8 6 5 4 2 S $2 TAX on Producers Pc DWL? Pp D 10 Q 7 Quantity Falls A lot!!! 5
EXCISE TAX ON CIGARETTES P S1 $10 8 7 6 5 4 2 S CS After Pconsumers =$7 • Tax per Unit? • Total Tax Revenue? • Tax paid by consumers? • Tax paid by producers? • Total spending? • Revenue for businesses? Pproducers = $4 D 20 30 Q 6
EXCISE TAX ON CIGARETTES P S1 $10 8 7 6 5 4 2 S CS After Pconsumers =$7 • Tax per Unit = $3 • Total Tax Revenue = $60 • Tax Paid by Consumers = $40 • Tax Paid by Producers = $20 • Total Spending = $140 • Revenue for Businesses=$80 Pproducers = $4 D 20 30 Q 7
