Incidence of tax

Question 1

what does tax shift

Answer 1

supply left
s1 = msc
s = mpc
d = mpb= msb

Question 2

what does the triangle represent

Answer 2

output at the free market level representing welfare loss

Question 3

incidence of tax

Answer 3

• proportion of tax that is passed onto the consumer
• if most of a tax is added to the consumer then the incidence of tax is said to be high
• when demand is price inelastic incidence of tax is high

Question 4

evaluation of taxes

Answer 4

• black market
• inequality
• impossible to quantify mec
• imperfect info
• costly to implement
• applicable to all interventions
• needs effective consequences