Unit 1 Micro Revision

1. Unit 1 Micro
Welfare Effects of
Indirect Taxes and
Subsidies

2. Welfare Effects of a Tax and a Subsidy
Costs and
Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax

3. Welfare Effects of a Tax and a Subsidy
Costs and
Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer
pays B
Supplier
receives C

4. Welfare Effects of a Tax and a Subsidy
Costs and
Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer
pays B
Supplier
receives C
Tax revenue

5. Welfare Effects of a Tax and a Subsidy
Costs and
Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer
pays B
Supplier
receives C
Tax revenue

6. Welfare Effects of a Tax and a Subsidy
Costs and
Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer
pays B
Supplier
receives C
Tax revenue
Consumer
burden

7. Welfare Effects of a Tax and a Subsidy
Costs and
Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer
pays B
Supplier
receives C
Tax revenue
Consumer
burden

8. Welfare Effects of a Tax and a Subsidy
Costs and
Benefits
Output
Demand
Supply pre tax
A
B
Supply post tax
B
C
Consumer
pays B
Supplier
receives C
Tax revenue
Consumer
burden
Producer burden

9. Quick Test!
An indirect tax on the
production of a good will
have no effect on price if
the price elasticity of
demand is? _________
If elasticity of demand for
a product is (-) 0.4 then
the majority of the
burden of a tax on the
producer will be paid by
the _________________
In the event of a new tax
on a product, the price
will rise by the full
amount of the tax when
the price elasticity of
demand is ___________

10. Quick Test!
An indirect tax on the
production of a good will
have no effect on price if
the price elasticity of
demand is? _________

11. Quick Test!
An indirect tax on the
production of a good will
have no effect on price if
the price elasticity of
demand is? Infinity

12. Quick Test!
An indirect tax on the
production of a good will
have no effect on price if
the price elasticity of
demand is? Infinity
If elasticity of demand for
a product is (-) 0.4 then
the majority of the
burden of a tax on the
producer will be paid by
the

13. Quick Test!
An indirect tax on the
production of a good will
have no effect on price if
the price elasticity of
demand is? Infinity
If elasticity of demand for
a product is (-) 0.4 then
the majority of the
burden of a tax on the
producer will be paid by
the Consumer

14. Quick Test!
An indirect tax on the
production of a good will
have no effect on price if
the price elasticity of
demand is? Infinity
If elasticity of demand for
a product is (-) 0.4 then
the majority of the
burden of a tax on the
producer will be paid by
the Consumer
In the event of a new tax
on a product, the price
will rise by the full
amount of the tax when
the price elasticity of
demand is ___________

15. Quick Test!
An indirect tax on the
production of a good will
have no effect on price if
the price elasticity of
demand is? Infinity
If elasticity of demand for
a product is (-) 0.4 then
the majority of the
burden of a tax on the
producer will be paid by
the Consumer
In the event of a new tax
on a product, the price
will rise by the full
amount of the tax when
the price elasticity of
demand is ZERO

16. Welfare effects of a subsidy
Costs and
Benefits
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy

17. Welfare effects of a subsidy
Costs and
Benefits
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy
C
D

18. Welfare effects of a subsidy
Costs and
Benefits
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy
C
D
E
Supplier
receives C
Consumer
pays B

19. Welfare effects of a subsidy
Costs and
Benefits
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy
C
D
E
Supplier
receives C
Consumer
pays B
Subsidy
payment

20. A subsidy when demand is price elastic
Price
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy

21. A subsidy when demand is price elastic
Price
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy
C
D

22. A subsidy when demand is price elastic
Price
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy
C
D
E

23. A subsidy when demand is price elastic
Price
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy
C
D
E

24. A subsidy when demand is price elastic
Price
Output
Demand
Supply post subsidy
A
B
Supply pre subsidy
C
D
E
Elastic demand – so a
subsidy causes a large rise
in quantity demanded