Tax Incidence: Sales Tax
- if we draw out the supply/demand curve before and after the tax, we see that the same exact economic burden exists for buyers and sellers as it did for the excise tax
* completely independent
- the demand curve is steep --> inelastic, so less sensitive to price changes
- the supply curve is flat --> elastic, so more sensitive to price changes
- more efficient to tax the demanders and put the majority of the economic burden on them
Taxes
- taxes cause people to look for substitutes
- cost of taxes are the opportunity costs and the dead weight loss
- not to mention there's a cost to sustain the IRS and the tax industry
- all this adds up to a very inefficient way of taxing --> need more efficient way
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