12/7

• Taxes prevent mutually beneficial transactions from happening
• Taxes easily distort information
• Taxes require a very considerable amount of time and effort
• Sales Tax
• buyer pays 
• reminder: in excise tax the seller pays
• New Equilibrium is where the sales tax line and supply line cross (aka the price tag)
• two prices
• Bubble Gum graph as an example
• initial P= $3 Final P = $2.75 Tax Paid= $1.00
• Buyer's Total Cost= $ 3.75    Seller's Total Cost= $2.75
• Burden (Real Cost From Initial Price)(how the tax is paid)
• Buyer:  $0.75
• Seller: $0.25
• Economic Incidence is independent of who has to pay the tax
• determined by relative elasticity 
• when buyers are insensitive (inelastic), they'll pay the bigger burden of the tax
• buyers are elastic, the sellers will pay bigger burden
• supply and demand curves inelastic
• tax won't be distortionary 
• Subsidy
• Doesn't matter who is subsidized
• relative supply and demand of product is what matters