Microeconomics

Elrazi University, Fall 2014

2nd Year Business Administration (BA) 1st. Semester
Saturday 09:40-11:10
Lecture - 3
Dr. Elwaleed Ahmed Talha
Elwaleed.ahmed@aol.com

Demand, Supply, and Government

Policies (Taxes) Page 121

1- How Taxes on sellers affect the market outcome? Page 123-121

2- How tax on buyers affect the market outcome? Page 125-123

3- Elasticity and tax incidents? Page 125-131

How Taxes on sellers affect the market outcome?

1- The immediate impact is on the supply side (sellers): tax on sellers
make the good less profitable at any given price, so it shifts the
supply curve either to the right or to the left.
2- Tax on sellers reduces the quantity supplied at any given price, so
the supply curve shift to the left.
3- Then you can compare the initial and the new equilibrium point.
Price of computer

Price buyers pay = 3.30

Price sellers receive=2.80
Price without tax= 3.00

S2 S1

A tax on sellers shift the

supply curve to the left
by the size of the tax

3.30
3.00
2.80

D
Quantity of computer
90 100

How Taxes on buyers affect the market outcome?

1- By contrast, buyers now have to pay a tax to the government (as
well as the price to the sellers) whenever they buy ice cream. Thus,
the tax shifts the demand curve for ice cream.
2- Because the tax on buyers makes buying ice cream less attractive,
As a result, the demand curve shifts to the left.
3- we can now see the effect of the tax by comparing the initial
equilibrium and the new equilibrium..
Price of computer
Price buyers pay = 3.30
Price sellers receive=2.80
Price without tax= 3.00

S1

A tax on sellers shift the

supply curve to the left
by the size of the tax

3.30
3.00
2.80

D1
D2
90 100

Quantity of computer

Elasticity and tax incidents

Inelastic Supply, Elastic Demand

Elastic Supply, Inelastic Demand

Price buyers pay

tax
Price without tax

Price buyers pay

Price without tax

Price sellers
receive

tax

Price sellers
receive

Consumer Surplus, Producer

Surplus and Market Efficiency
1.

Consumer Surplus . Page 140

2.

Producer Surplus .Page 144

3.

Market Efficiency .Page 146

Consumer Surplus
Consumer Surplus: the amount a buyer is willing to pay for a good minus the
amount the buyer actually pays for it.

Willingness to Pay: the maximum amount that a buyer will pay for a good.

Consumer surplus
(A)

Price

The Total consumer

surplus (A+B+C)

A
P1

The new consumer surpluses (B+C)

P2

Q1

Price increase

Q2

Quantity demanded decrease

Quantity

consumer surplus decrease

Producer Surplus
Producer Surplus : the amount a seller is paid for a good minus the sellers cost of
providing it.
Cost : the value of everything a seller must give up to produce a good
Price

Supply curve

Total producer surplus

P1

P2

A
Initial producer surpluses

Quantity supplied
Q2

Price increase

Quantity supplied increase

Q1

Producer surplus increase

Consumer surplus and producer surplus together

Consume
r surplus

Producer surplus

How to calculate triangle:

the area = *(base )*(height)