Ch 07 _4 up_ - THIRDEDITION ECONOMICS and MICROECONOMICS PaulKrugman|RobinWells demand burdenofatax ,andwhy Thed


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10/14/2012 1 Taxes Chapter 7 THIRD EDITION ECONOMICS and MICROECONOMICS Paul Krugman | Robin Wells The effects of taxes on supply and demand What determines who really bears the burden of a tax The costs and benefits of taxes, and why taxes impose a cost that is larger than the tax revenue they raise The difference between progressive and regressive taxes and the trade off between tax equity and tax efficiency The structure of the U.S. tax system WHAT YOU WILL LEARN IN THIS CHAPTER The Economics of Taxes: A Preliminary View An excise tax is a tax on sales of a good or service. Excise taxes: raise the price paid by buyers reduce the price received by sellers Excise taxes also drive a wedge between the two prices. Examples: The excise tax levied on sales of taxi rides and the excise tax levied on purchases of taxi rides. The Supply and Demand for Hotel Rooms in Potterville S D 0 5,000 10,000 15,000 $140 120 100 80 60 40 20 E B Price of hotel room Quantity of hotel rooms Equilibrium quantity Equilibrium price