Effects of a Sales Tax

1. Effects of a Sales Tax

2. The effect of a sales tax collected from sellers is to • Shift the demand curve up. • Shift the supply curve down. • Shift the demand curve down. • Shift the supply curve up. • Shift both the demand and the supply curve.

3. The effect of a sales tax collected from buyers is to • Shift the demand curve up. • Shift the supply curve down. • Shift the demand curve down. • Shift the supply curve up. • Shift both the demand and the supply curve.

4. And on to our lecture…

5. If the demand curve slopes down and the supply curve is vertical, a sales tax collected from buyers • Not change the price paid to sellers. • Will reduce price paid to sellers by the amount of the tax. • Will reduce price paid to sellers by less than amount of the tax. • Will increase price paid to sellers.

6. Vertical supply case price Pretax price Demand curve shifts down Post tax quantity

7. If the supply curve is horizontal, a $10 per unit tax collected from sellers will increase the equilibrium price paid by demanders • By $10. • By less than $10. • By more than $10.

8. Why is that? Supply curve with tax $10 Supply curve Without tax

9. The demand curve has slope –1 and the supply curve has slope +2. A sales tax causes the after tax price to buyers to rise by $10. The after tax price received by sellers must have fallen • By $10 • By $5 • By $20 • By $0

10. Why is that? If slope of demand curve is -1 And price rises by 10, quantity Falls by 10. If slope of the supply Curve is 2, price received by Suppliers must fall by 20.

11. Reminder: Midterm Weds Oct 24

12. What will the quiz be like? Multiple Choice and True False Questions.

13. If you haven’t studied

14. If you’ve studied