Does making drugs illegal solve the drug problem?
- becomes costly to hire extra law enforcement to monitor the drug trade --> lose out on other services possible with that extra money spent (opp. cost)
- more enforcement raises tension and results in more violent acts as a result
Tax Incidence: Excise Tax
- tax on sellers
- the initial EQ point for bubble gum yields a price of $3.00 and a quantity of 3 million
- an excise tax of $1.00 produces:
Pbuyers = $3.75
Psellers = $2.75
QT = 2.75 million
- when we do out the math, we see that the net economic burden for the buyers (75 cents) is greater than that of the sellers (25 cents), even though an excise tax is supposed to be a tax on sellers
- the tax also produces a dead weight loss
* the world is poorer by that amount
* represents the possible transactions that would've happened had the tax not been in place
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