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Chapter SixteenEquilibriumWhat Do We Do in This Chapter?uWe study the concept of equilibriumuWe will study external changes to equilibriumMarket EquilibriumuA market is in equilibrium when total quantity demanded by buyers equals total quantity supplied by sellers.Market EquilibriumpD(p),S(p)q=D(p)MarketdemandMarketsupplyq=S(p)p*q*D(p*)=S(p*);the marketis in equilibrium.Market EquilibriumuTwo special cases:lquantity supplied is fixed,independent of the market price,andlquantity supplied is extremely sensitive to the market price.Market EquilibriumS(p)=c+dp,so d=0and S(p)c.pqq*=cD-1(q)=(a-q)/bMarketdemandMarket quantity supplied isfixed,independent of price.Market EquilibriumMarket quantity supplied isextremely sensitive to price.S-1(q)=p*.pqp*D-1(q)=(a-q)/bMarketdemandQuantity TaxesuA quantity tax levied at a rate of$t is a tax of$t paid on each unit traded.uIf the tax is levied on sellers then it is an excise tax.uIf the tax is levied on buyers then it is a sales tax.Quantity TaxesuWhat is the effect of a quantity tax on a markets equilibrium?uHow are prices affected?uHow is the quantity traded affected?uWho pays the tax?uHow are gains-to-trade altered?Quantity TaxesuA tax rate t makes the price paid by buyers,pb,higher by t from the price received by sellers,ps.Quantity TaxesuEven with a tax the market must clear.uI.e.quantity demanded by buyers at price pb must equal quantity supplied by sellers at price ps.Quantity Taxesanddescribe the markets equilibrium.Notice these conditions apply nomatter if the tax is levied on sellers or onbuyers.Quantity Taxesanddescribe the markets equilibrium.Notice that these two conditions apply nomatter if the tax is levied on sellers or onbuyers.Hence,a sales tax rate$t has thesame effect as an excise tax rate$t.Quantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*No taxQuantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*$tAn excise taxraises the marketsupply curve by$tQuantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*An excise taxraises the marketsupply curve by$t,raises the buyersprice and lowers thequantity traded.$tpbqtQuantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*An excise taxraises the marketsupply curve by$t,raises the buyersprice and lowers thequantity traded.$tpbqtAnd sellers receive only ps=pb-t.psQuantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*An sales tax lowersthe market demandcurve by$t$tQuantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*An sales tax lowersthe market demandcurve by$t,lowersthe sellers price andreduces the quantitytraded.$tqtpsQuantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*An sales tax lowersthe market demandcurve by$t,lowersthe sellers price andreduces the quantitytraded.$tpbpbqtpbAnd buyers pay pb=ps+t.psQuantity Taxes&Market EquilibriumuWho pays the tax of$t per unit traded?uThe division of the$t between buyers and sellers is the incidence of the tax.Quantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*pbpbqtpbpsQuantity Taxes&Market EquilibriumpD(p),S(p)MarketdemandMarketsupplyp*q*pbpbqtpbpsTax paid by buyersTax paid by sellersQuantity Taxes&Market EquilibriumuE.g.suppose the market demand and supply curves are linear.Quantity Taxes&Market EquilibriumandWith the tax,the market equilibrium satisfiesandsoandSubstituting for pb givesQuantity Taxes&Market EquilibriumandgiveThe quantity traded at equilibrium isQuantity Taxes&Market EquilibriumAs t increases,ps falls,pb rises,andqt falls.Quantity Taxes&Market EquilibriumThe tax paid per unit by the buyer isThe tax paid per unit by the seller isQuantity Taxes&Market EquilibriumThe total tax paid(by buyers and sellerscombined)isTax Incidence and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*$tpbqtpsTax Incidence and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*$tpbqtpsChange to buyersprice is pb-p*.Change to quantitydemanded is D Dq.D DqTax Incidence and Own-Price ElasticitiesAround p=p*the own-price elasticityof demand is approximatelyTax Incidence and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*$tpbqtpsChange to sellersprice is ps-p*.Change to quantitydemanded is D Dq.D DqTax Incidence and Own-Price ElasticitiesAround p=p*the own-price elasticityof supply is approximatelyTax Incidence and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*pbpbqtpbpsTax paid by buyersTax paid by sellersTax incidence=Tax Incidence and Own-Price ElasticitiesTax incidence=SoTax Incidence and Own-Price ElasticitiesTax incidence isThe fraction of a$t quantity tax paidby buyers rises as supply becomes moreown-price elastic or as demand becomesless own-price elastic.Tax Incidence and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyps=p*$tpbqt=q*As market demandbecomes less own-price elastic,taxincidence shifts moreto the buyers.When e eD=0,buyers pay the entire tax,even though it is levied on the sellers.Deadweight Loss and Own-Price ElasticitiesuA quantity tax imposed on a competitive market reduces the quantity traded and so reduces gains-to-trade(i.e.the sum of Consumers and Producers Surpluses).uThe lost total surplus is the taxs deadweight loss,or excess burden.Deadweight Loss and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*No taxDeadweight Loss and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*No taxCSPSDeadweight Loss and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*$tpbqtpsCSPSThe tax reducesboth CS and PS,transfers surplusto governmentTaxDeadweight Loss and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*$tpbqtpsCSPSTaxDeadweight lossDeadweight Loss and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*$tpbqtpsDeadweight loss fallsas market demandbecomes less own-price elastic.Deadweight Loss and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyp*q*$tpbqtpsDeadweight loss fallsas market demandbecomes less own-price elastic.Deadweight Loss and Own-Price ElasticitiespD(p),S(p)MarketdemandMarketsupplyps=p*$tpbqt=q*Deadweight loss fallsas market demandbecomes less own-price elastic.When e eD=0,the tax causes no deadweight loss.Deadweight Loss and Own-Price ElasticitiesuDeadweight loss due to a quantity tax rises as either market demand or market supply becomes more own-price elastic.uIf either e eD=0 or e eS=0 then the deadweight loss is zero.提问与解答环节Questions And Answers谢谢聆听 学习就是为了达到一定目的而努力去干,是为一个目标去战胜各种困难的过程,这个过程会充满压力、痛苦和挫折Learning Is To Achieve A Certain Goal And Work Hard,Is A Process To Overcome Various Difficulties For A Goal
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