what types of the policy implication by the government decided when imposition of taxes on consumer surplus or producer surplus?
Answers
Explanation:
Taxes are not the most popular policy, but they are often necessary. We will look at two methods to understand how taxes affect the market: by shifting the curve and using the wedge method. First, we must examine the difference between legal tax incidence and economic tax incidence.
Legal versus Economic Tax Incidence
When the government sets a tax, it must decide whether to levy the tax on the producers or the consumers. This is called legal tax incidence
Tax – Shifting the Curve
In Topic 3, we determined that the supply curve was derived from a firm’s Marginal Cost and that shifts in the supply curve were caused by any changes in the market that caused an increase in MC at every quantity level. This is no different for a tax. From the producer’s perspective, any tax levied on them is just an increase in the marginal costs per unit. To illustrate the effect of a tax, let’s look at the oil market again.