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Learn about how excise taxes impact consumer behavior through the concepts of elasticity and tax burden distribution on cigarettes and yachts. Explore scenarios where quantity demanded drastically changes or remains relatively stable despite tax imposition. Gain insights into tax revenue, consumer spending, and business revenue implications.
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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
