Learn economics taxes microeconomics with free interactive flashcards. Taxation in microeconomics chapter exam instructions. A tax which we will deal in todays lecture is sales tax or tax that occur when there is exchange of goods. Mirrlees 71 had a huge impact on information economics. All the following questions are from previous exams for economics 103. How to calculate excise tax and determine who bears the burden of the tax. The study of the welfare effect of the income tax and the. If demand is highly elastic then producers will bear the brunt of the tax burden. How excise or property tax works with leasing boston. As recommended by theory, top marginal income tax rates have. Tax example excise tax on cars given different excise taxes, calculate changes to the consumer surplus, producer surplus, deadweight. Microeconomics practice problem the algebra of taxes.
University microeconomics excise tax on sellers heres the question. To plot a linear relationship between two variables, use the algebraic formula for a straight line in a plane. When someone purchases a pack of cigarettes, they pay a sales tax just like they do with all other goods and services they purchase, but they also pay an additional tax on just the cigarettes known. Elasticities useful in economics because they are unit free. See the practice problems playlist for an archive of daily practice problems. Comprehensive description in gruber undergrad textbook. An excise tax is an indirect tax charged on the sale of a particular good. Taxes are generally an involuntary fee levied on individuals or corporations that is enforced by a government entity, whether local, regional or national in order to finance government activities. Types of excise taxes levied on cigarettes, prices and rates.
Macroeconomic changes also influence the amount of revenue a tax system raises, through socalled dynamic effects. Remember, if demand is highly inelastic then consumers will bear the brunt of the tax burden i. Excise taxes like this also may be levied on goods simply to raise revenue to fund government spending such as a new light rail system or other public or quasipublic goods. A tax imposed on the sellersupply elasticity determines whether buyer or seller bears incidence of tax.
Some of the main issues in excise tax design concern the choice between specific and ad valorem rates. If the market for a good or service is imperfectly competitive, then, depending on the nature of competition and cost conditions, consumers may well bear more than 100 percent of the burden of an excise tax delipalla and keen, 1992. Economics and politics of excise taxation request pdf. Excise tax wedge worksheet by intuitive econ teachers pay. Interfering with versus working through the market. Formula chart ap microeconomics unit 2 supply and demand. Gst, on the other hand, has standard rates at 0%, 5%, 12%, 18%, and 28% depending upon the kind of product. Price producers receive is from pretax supply equation pnet qt3 123 4. The equilibrium price and quantity before the imposition of tax is q0 and p0. Poll taxes are administratively cheap because they.
Optimal taxation in theory and practice harvard dash. A good example of an excise tax is the per unit tax on cigarettes which most states impose. Blue box amount of tax born by the consumers in the form of lost consumer surplus. The problem is taken from principles of microeconomics, 6th edition, by n. An excise tax is an indirect tax charged by the government on the sale of a particular good or service. To calculate tax incidence, we first have to find out whether the tax shifts the supply or the demand curve. To figure out how to calculate deadweight loss from taxation, refer to the graph shown below. To illustrate the effect of a tax, lets look at the oil market again. China tobacco year book and national bureau of statistics of. The government sets a limit on how low a price can be charged for a good or service. Oct 30, 2019 in economic theory, tax incidence which refers to the distribution of a tax burden between buyers and sellers only depends on the elasticity of supply and demand. The macroeconomic effects of taxes are important because they can affect peoples wellbeing, although those effects do not always directly correspond to the effects on measured economic output. Endorsements salanie deserves great credit for presenting the fundamental theory of taxation and its application in a concise and accessible form. Indirect means the tax is not directly paid by an individual consumer.
Choose from 500 different sets of economics taxes microeconomics flashcards on quizlet. When the government levies a gas tax, the producers will pass some of these costs on as an increased price. From the producers perspective, any tax levied on them is just an increase in the marginal costs per unit. Lecture presentation excise tax price elasticity of demand. One of the earliest taxes mentioned in the bible of a halfshekel per annum from each adult jew ex. Producers would want to supply less due to the imposition. Benefits principle the principle of tax fairness by which those who benefit from public spending should bear the burden of the tax that pays for that spending. You could be asking about a sales tax or gross receipts tax. An example of a price floor would be minimum wage price ceilings. Measuring eb in terms of change in government revenue this is a rstorder approximation. Many other special excises are in use, such as taxes on coffee, sugar, salt, vinegar, matches, and amusements. Microeconomics practice problem the algebra of taxes, government revenue. Another way of illustrating the loss of value that an excise tax can cause.
This is in contrast to an excise tax, where the charged value is based on the number of items being sold. Salanie is the author of microeconomics of market failures 2000 and the economics of contracts. Revenueraising efficiency aspects governments employ alcohol excise taxation as with excise tax on other goods such as tobacco, petroleum and motor vehicles for revenuegeneration purposes. The formula for the slope of a line is the change in the yaxis variable divided by. Figures are the manufacturers list prices for vehicles in their year of manufacture.
Oct 14, 20 the problem is taken from principles of microeconomics, 6th edition, by n. The first part examines the rationale of excise taxation by reference to. Be able to graph and explain tax burden with different demand and supply priceelasticities. Lecture presentation excise tax price elasticity of. Tax example excise tax on cars given different excise taxes, calculate changes to the consumer surplus, producer surplus, deadweight loss and tax revenu. Thus there is a larger social welfare loss when excise tax is. Efficiency of an excise tax ii in the last section we used a supply and demand graph to show the welfare cost of an excise tax.
Tax revenue price w tax price seller receives x quantity unit 3 production markets revenue. An excise tax introduces a wedge between the price paid by consumers pc and the price received by producers pp. Government levies an excise tax on good x excise means it is levied on a quantity gallon, pack, ton. Specific tax is a unitquantity tax placed on goods. Gregory mankiw is professor of economics, matthew weinzierl is assistant professor of. Twenty percent of sales were subject to both a ten percent excise tax and a five percent sales. Over time, corporate income tax receipts have declined as a share of gdp, from about 4% in the 1960s to an average of 1% to 2% of gdp in the first decade of the 2000s. The federal government has a few other, smaller sources of revenue. The resources used which is a cost by government to collect the tax, and by taxpayers to pay it, over and above the amount of the tax, as well as to evade it.
What would be the elasticity of a product that is technically unlimited, such as a software download or an ebook. Present market value, price paid, or condition are not considered for excise tax purposes. Taxation in microeconomics practice test questions. You can skip questions if you would like and come back. It imposes an excise taxthat is, a tax on a particular goodon gasoline, tobacco, and alcohol. The tax wedgethe resulting after tax quantity exchangedthe new after tax price buyers will be forced to paythe new after tax price sellers will receivethe tax revenue collected by the governmentthe tax incidence on both consumers and producers the back. Exploiting statelevel changes in these two taxes, estimate b. Excise tax revenue in most countries comes primarily from excises on automobiles, motor fuels, tobacco, and alcoholic beverages. Thus there is a larger social welfare loss when excise tax is imposed on a single output comparing to the same tax imposed on consumer income. Excise and sales tax calculations madison corporation initially records its sales at amounts that exclude any related excise and sales taxes. Benefits principle the principle of tax fairness by. Jul 11, 2012 tax example excise tax on cars given different excise taxes, calculate changes to the consumer surplus, producer surplus, deadweight loss and tax revenues.
The tax wedgethe resulting aftertax quantity exchangedthe new. Meanwhile, the share of revenue from specific excise taxes has fallen from 24. Deadweight loss examples, how to calculate deadweight loss. When excise taxes are placed on these goods, the sellers can pass most of the tax on to the consumers, because consumers. Excise tax revenue in most countries comes primarily from excises on automobiles, motor fuels, tobacco, and. The macroeconomic effects of taxes urban institute. Apr 28, 2009 the government imposes an excise tax on the sales of all college textbooks. If the market for a good or service is imperfectly competitive, then, depending on the nature of competition. Example 23 rent control harms the housing market example 24 the economics of u.
A poll tax, also called a per capita tax, or capitation tax, is a tax that levies a set amount per individual. Excise tax wedge worksheet by intuitive econ teachers. With the tax, the supply curve shifts by the tax amount from supply0 to supply1. A sales tax is a per transaction tax calculated as a percentage of sales. This note provides a basic framework of public finance at the microeconomic level, starting from a general theory of taxation on commodity, income and corporate. Cnossen 2010 outlined that the objectives of excise taxation include. This front side of this worksheet asks students to apply an excise tax in a market and to identify and calculate each of the following. The government imposes an excise tax on the sales of all college textbooks. A primer second edition, 2005, both published by the mit press. In a market where the supply curve is perfectly inelastic, how does an excise. Figure 3 in elasticity and pricing by openstaxcollege, cc by 4. This is prepared as an entry for the new palgrave dictionary of economics, 2 nd ed. After the tax is imposed, 600,000 books are sold yearly. A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer an individual or legal entity by a governmental organization in order to fund various public expenditures.
Choose your answers to the questions and click next to see the next set of questions. This note provides a basic framework of public finance at the microeconomic level, starting from a general theory of taxation on commodity, income and corporate profits and then extending issues of tax evasion and compliance, and tax reform. How to calculate a tax revenue in microeconomics quora. Request pdf economics and politics of excise taxation excise taxes.
Another way of illustrating the loss of value that an excise tax can cause is with the productionpossibilities frontier in the graph below. They are duplicates of the questions found in the topic subsections. The rates applicable to excise duty are specified as per the central excise tariff rules. Formula chart ap microeconomics unit 2 supply and demand total revenue price x quantity total revenue test p coefficient of price elasticity of demand.
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