Alright, let's try this example. The following graph depicts the market for a bag of magic beans. If the government imposes a tax of 1 cow on buyers of magic beans, what is the tax incidence on producers of magic beans? Alright, so let's go ahead and look at our graph here real quick. So we've got our price, which is in cows, and our quantity over here, right? And we've got a supply and a demand curve, and then we're going to have a shift in the demand curve because there's a tax on the buyers, right? When the tax is on the buyers, the demand curve is going to shift, and this one's our original demand curve because that's where we have this one price, right? Where we have this cross and this equilibrium going on right here. So right there was our original equilibrium at 2.5, right. So man, this must be some sort of dystopian future Jack and the Beanstalk where first of all there's been a lot of inflation, right? Jack was able to get his bag of magic beans for just one cow and now we're talking about an equilibrium of 2.5 cows, so we're dealing with half cows. Man, this society's gotten pretty weird. So anyways, at this 2.5 price that was our original q-star, right. So let's go ahead and see what happens after this tax is imposed. So the tax is on the buyer and we're going to shift the demand curve just like they have here, and this is going to be d2, right? That was d1, this is d2, or d with the tax, right? So, it's asking us what is the tax incidence on producers, right? The tax incidence is the share of the tax that that party is going to pay. In this case, the producers. So, what is the share of the tax to the producers? We know that the total tax was 1, right? There was 1 cow that was the additional tax here. So it's pretty easy to find it and it's only this area here is representing the tax, right? Between the 1.9 and the 2.9. So how do we gauge what is the amount paid by producers? Well, we know that up here, this 2.9, that's the price the buyers are going to pay, right? They're going to pay this price, PB, and the sellers are going to receive 1.9, right? Because of that 1 cow tax. So if the original equilibrium was at 2.5, right? So sellers were originally receiving 2.5 cows per bag, now they're only receiving 1.9 cows per bag. So what's the difference? 2.5 cows they were originally receiving, minus 1.9, they're paying 0.6 cows of this tax. Right? They're taking 0.6 out of the one, and we can turn this into a percentage pretty quick, right? 0.6 divided by the total tax which was 1 and that's going to give us 0.6, right? So that as a decimal is 60%. So 60% of this one cow tax is being paid by producers in this case and you can see the other 40%, right the 2.9 minus the 2.5, that's being paid by the consumers in this market. Alright, so that's the tax incidence on producers is going to be 60% or 0.6 cows. Alright, let's go ahead to the next video.
Table of contents
- 0. Basic Principles of Economics1h 5m
- Introduction to Economics3m
- People Are Rational2m
- People Respond to Incentives1m
- Scarcity and Choice2m
- Marginal Analysis9m
- Allocative Efficiency, Productive Efficiency, and Equality7m
- Positive and Normative Analysis7m
- Microeconomics vs. Macroeconomics2m
- Factors of Production5m
- Circular Flow Diagram5m
- Graphing Review10m
- Percentage and Decimal Review4m
- Fractions Review2m
- 1. Reading and Understanding Graphs59m
- 2. Introductory Economic Models1h 10m
- 3. The Market Forces of Supply and Demand2h 26m
- Competitive Markets10m
- The Demand Curve13m
- Shifts in the Demand Curve24m
- Movement Along a Demand Curve5m
- The Supply Curve9m
- Shifts in the Supply Curve22m
- Movement Along a Supply Curve3m
- Market Equilibrium8m
- Using the Supply and Demand Curves to Find Equilibrium3m
- Effects of Surplus3m
- Effects of Shortage2m
- Supply and Demand: Quantitative Analysis40m
- 4. Elasticity2h 16m
- Percentage Change and Price Elasticity of Demand10m
- Elasticity and the Midpoint Method20m
- Price Elasticity of Demand on a Graph11m
- Determinants of Price Elasticity of Demand6m
- Total Revenue Test13m
- Total Revenue Along a Linear Demand Curve14m
- Income Elasticity of Demand23m
- Cross-Price Elasticity of Demand11m
- Price Elasticity of Supply12m
- Price Elasticity of Supply on a Graph3m
- Elasticity Summary9m
- 5. Consumer and Producer Surplus; Price Ceilings and Floors3h 45m
- Consumer Surplus and Willingness to Pay38m
- Producer Surplus and Willingness to Sell26m
- Economic Surplus and Efficiency18m
- Quantitative Analysis of Consumer and Producer Surplus at Equilibrium28m
- Price Ceilings, Price Floors, and Black Markets38m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Points20m
- Quantitative Analysis of Price Ceilings and Price Floors: Finding Areas54m
- 6. Introduction to Taxes and Subsidies1h 46m
- 7. Externalities1h 12m
- 8. The Types of Goods1h 13m
- 9. International Trade1h 16m
- 10. The Costs of Production2h 35m
- 11. Perfect Competition2h 23m
- Introduction to the Four Market Models2m
- Characteristics of Perfect Competition6m
- Revenue in Perfect Competition14m
- Perfect Competition Profit on the Graph20m
- Short Run Shutdown Decision33m
- Long Run Entry and Exit Decision18m
- Individual Supply Curve in the Short Run and Long Run6m
- Market Supply Curve in the Short Run and Long Run9m
- Long Run Equilibrium12m
- Perfect Competition and Efficiency15m
- Four Market Model Summary: Perfect Competition5m
- 12. Monopoly2h 13m
- Characteristics of Monopoly21m
- Monopoly Revenue12m
- Monopoly Profit on the Graph16m
- Monopoly Efficiency and Deadweight Loss20m
- Price Discrimination22m
- Antitrust Laws and Government Regulation of Monopolies11m
- Mergers and the Herfindahl-Hirschman Index (HHI)17m
- Four Firm Concentration Ratio6m
- Four Market Model Summary: Monopoly4m
- 13. Monopolistic Competition1h 9m
- 14. Oligopoly1h 26m
- 15. Markets for the Factors of Production1h 33m
- The Production Function and Marginal Revenue Product16m
- Demand for Labor in Perfect Competition7m
- Shifts in Labor Demand13m
- Supply of Labor in Perfect Competition7m
- Shifts in Labor Supply5m
- Differences in Wages6m
- Discrimination6m
- Other Factors of Production: Land and Capital5m
- Unions6m
- Monopsony11m
- Bilateral Monopoly5m
- 16. Income Inequality and Poverty35m
- 17. Asymmetric Information, Voting, and Public Choice39m
- 18. Consumer Choice and Behavioral Economics1h 16m
6. Introduction to Taxes and Subsidies
Introducing Taxes and Tax Incidence
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