1. The Incidence of Taxation

2. The incidence of taxation Indirect taxes

3. S P Q O Effect of a tax on the supply curve

4. S + specific tax S amount of specific tax P Q O Effect of a tax on the supply curve

5. S + ad valorem tax S P Q O Effect of a tax on the supply curve

6. The incidence of taxation Effect of indirect taxes on market price and quantity Effect of indirect taxes on market price and quantity

7. S P Q O P1P1 Q1Q1 D Effect of a tax on price and quantity

8. S + tax S O P 1 + tax P1P1 P2P2 Q1Q1 Q2Q2 D P Q Effect of a tax on price and quantity

9. The incidence of taxation The incidence of indirect taxes: effects of different demand and supply elasticities

10. S + tax S O P1P1 Q1Q1 D P Q Incidence of tax: inelastic demand

11. S + tax S O P1P1 P2P2 Q2Q2 Q1Q1 D P Q Incidence of tax: inelastic demand

12. S + tax S O P1P1 P2P2 Q2Q2 Q1Q1 D CONSUMERS’ SHARE CONSUMERS’ SHARE P 2 - t PRODUCERS’ SHARE P Q Incidence of tax: inelastic demand

13. S + tax S O P1P1 Q1Q1 D P Q Incidence of tax: elastic demand

14. S + tax S O P1P1 P2P2 Q1Q1 D Q2Q2 P Q Incidence of tax: elastic demand

15. S + tax S O P1P1 P2P2 Q2Q2 Q1Q1 D CONSUMERS’ SHARE CONSUMERS’ SHARE P Q Incidence of tax: elastic demand

16. S + tax S O P 2 - t P1P1 P2P2 Q2Q2 Q1Q1 D CONSUMERS’ SHARE CONSUMERS’ SHARE PRODUCERS’ SHARE PRODUCERS’ SHARE P Q Incidence of tax: elastic demand

17. S + tax S O P1P1 Q1Q1 D P Q Incidence of tax: inelastic supply

18. S + tax S O P1P1 P2P2 Q1Q1 D Q2Q2 P Q Incidence of tax: inelastic supply

19. S + tax S O P1P1 P2P2 Q2Q2 Q1Q1 D P Q CONSUMERS’ SHARE Incidence of tax: inelastic supply

20. S + tax S O P 2 - t P1P1 P2P2 Q2Q2 Q1Q1 D P Q CONSUMERS’ SHARE PRODUCERS’ SHARE Incidence of tax: inelastic supply

21. S + tax P Q O P1P1 Q1Q1 D S Incidence of tax: elastic supply

22. S + tax P Q O P1P1 P2P2 Q1Q1 D Q2Q2 S Incidence of tax: elastic supply

23. S + tax P Q O P1P1 P2P2 Q2Q2 Q1Q1 D S CONSUMERS’ SHARE CONSUMERS’ SHARE Incidence of tax: elastic supply

24. S + tax P Q O P 2 - t P1P1 P2P2 Q2Q2 Q1Q1 D S CONSUMERS’ SHARE CONSUMERS’ SHARE PRODUCERS’ SHARE PRODUCERS’ SHARE Incidence of tax: elastic supply

26. Conclusion: Using the four extremes of elasticity it is now possible to discuss the effects of putting a tax on any particular product with respect to: 1. Incidence: the more __________ is demand and the more _________ is supply the higher the incidence of a tax on consumers. The more elastic is demand and the more inelastic is supply the higher is the incidence of a tax on producers. t 2. Government revenue: this will be greater the lower the elasticity of demand and the lower the elasticity of supply. 3. Resource allocation: will be most affected the higher is the elasticity of demand and the higher the elasticity of supply.