4.3 Elasticity Matters for Excise Taxes Flashcards
What is excise tax?
excise tax
A tax on the sale of a particular product.
The federal and provincial governments in Canada levy special sales taxes called excise taxes on many products, such as cigarettes, alcohol, and gasoline.
The federal and provincial governments in Canada levy special sales taxes called excise taxes on many products, such as cigarettes, alcohol, and gasoline.
When dose excise tax occur?
At the point of sale of the product, the sellers collect the tax on behalf of the government and then remit the tax collections.
What is tax incidence?
tax incidence
The location of the burden of a tax—that is, the identity of the ultimate bearer of the tax.
How is the burden of excise tax distributed?
The burden of an excise tax is distributed between consumers and sellers in a manner that depends on the relative elasticities of supply and demand.
The burden of the excise tax is shared between consumers and sellers in proportion to the rise in price to consumers relative to the fall in price received by sellers.
What is consumer price and seller price?
With an excise tax, the price paid by the consumer, called the consumer price, and the price ultimately received by the seller, called the seller price, must differ by the amount of the tax, t.
What is the difference between the consumer and seller prices after the imposition of an excise tax?
After the imposition of an excise tax, the difference between the consumer and seller prices is equal to the tax. In the new equilibrium, the quantity exchanged is less than what occured without the tax.
Who bears most of the burden of excise taxes when demand is inelastic relative to supply?
When demand is inelastic relative to supply, consumers bear most of the burden of excise taxes.
Who bears most of the burden of excise taxes when supply is inelastic relative to demand?
When supply is inelastic relative to demand, producers bear most of the burden.
