Incidence of tax Flashcards
define tax incidence
how the burden of tax is distributed between producers and consumers (or between employer and employee)
what does the tax incidence depend upon?
the relative elasticity of demand and supply
what does the consumer burden of a tax increase reflect? and how is it detected?
the amount by which the market price rises - by looking at the rise in prices
what is the producer burden?
the define in revenue they get after paying the tax
what do producers and consumers NOT pay?
the same percentage of the tax
what does incidence of tax measures?
the burden of the tax upon the tax payer and producer
describe situation when consumer picks up the bill?
- inelastic
- consumer pays the price increase from the tax and producer pays the excess left over.
- supply and demand curves shift to point where they meet, and producer doesn’t pay any of that tax.
how do you calculate total consumer burden?
quantity x burden
describe situation when producer picks up bill?
elastic - producer has to absorb tax burden as price only rises by a small amount. producer can’t put all that tax price onto price as demand is elastic so can’t raise price too much.
