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Taxes Quantity Taxes ?A quantity tax levied at a rate of $t is a tax of $t paid on each unit traded. ?If the tax is levied on sellers then it is an excise tax. ?If the tax is levied on buyers then it is a sales tax. Quantity Taxes ?What is the effect of a quantity tax on a market’s equilibrium? ?How are prices affected? ?How is the quantity traded affected? ?Who pays the tax? ?How are gainstotrade altered? Quantity Taxes ?A tax rate t makes the price paid by buyers, pb, higher by t from the price received by sellers, ps. p p tb s? ?Quantity Taxes ?Even with a tax the market must clear. ?. quantity demanded by buyers at price pb must equal quantity supplied by sellers at price ps. D p S pb s( ) ( )?Quantity Taxes p p tb s? ? D p S pb s( ) ( )?and describe the market’s equilibrium. Notice that these two conditions apply no matter if the tax is levied on sellers or on buyers. Hence, a sales tax rate $t has the same effect as an excise tax rate $t. Quantity Taxes amp。 S D p a bp( ) ? ?S p c dp( ) ? ?At the equilibrium price p*, D(p*) = S(p*). That is, a bp c dp? ? ?* *which gives p a cb d* ? ??and q D p S p ad bcb d* * *( ) ( ) .? ? ? ??Market Equilibrium p D(p), S(p) D(p) = abp Market demand Market supply S(p) = c+dp pa cb d* ???dbbcadq *???Market Equilibrium ?Can we calculate the market equilibrium using the inverse market demand and supply curves? ?Yes, it is the same calculation. Market Equilibrium q D p a bp p a qb D q? ? ? ? ? ? ? ?( ) ( ),1q S p c dp p c qd S q? ? ? ? ? ? ? ? ?( ) ( ),1the equation of the inverse market demand curve. And the equation of the inverse market supply curve. Market Equilibrium q D1(q), S1(q) D1(q) = (aq)/b Market inverse demand S1(q) = (c+q)/d p* q* At equilibrium, D1(q*) = S1(q*). Market inverse supply Market Equilibrium p D q a qb? ? ?? 1 ( )p S q c qd? ? ? ?? 1 ( ) .and At the equilibrium quantity q*, D1(p*) = S1(p*). That is, a qbc qd? ? ? ?* *which gives q ad bcb d* ? ??and p D q S q a cb d* * *( ) ( ) .? ? ? ??? ?1 1Market Equilibrium q D1(q), S1(q) D1(q) = (aq)/b Market demand Market supply S1(q) = (c+q)/d pa cb d* ???dbbcadq *???Market Equilibrium ?Two special cases: ?quantity supplied is fixed, independent of the market price, and ?quantity supplied is extremely sensitive to the market price. Market Equilibrium S(p) = c+dp, so d=0 and S(p) ? c. p q q* = c Market quantity supplied is fixed, independent of price. Market Equilibrium S(p) = c+dp, so d=0 and S(p) ? c. p q p* D1(q) = (aq)/b Market demand q* = c Market quantity supplied is fixed, independent of price. Market Equilibrium S(p) = c+dp, so d=0 and S(p) ? c. p q p* = (ac)/b D1(q) = (aq)/b Market demand q* = c p* = D1(q*)。 an excess of quantity demanded over quantity supplied. p” S(p”) Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* D(p”) D(p”) S(p”)。 an excess of quantity supplied over quantity demanded. p’ D(p’) Market Equilibrium p D(p), S(p) q=D(p) Market demand Market supply q=S(p) p* S(p’) D(p’) S(p’)。Chapter Sixteen Equilibrium 均衡 Structure ?Market equilibrium ?Quantity tax and equilibrium ?Tax inciden