See question below at ****
Suppose local govt decides that a tax is the best way to address the inefficiency created by outdoor concerts. Assuming the social cost curve and the private cost curve are parallel to each other, how much does the tax on concerts have to be to achieve the socially optimal outcome?
Econ - urgent please help - bobpursley, Monday, November 14, 2011 at 8:43am
If one adds a tax ,then the private cost curve moves upward to the social cost curve, but will not cross it ever, it could be colinear. There would not be an optimals solution of attendance, as the marginal revenue would always equal mariginal costs.
So the tax to get to this is the difference between the private cost curve and the social cost curve AT ANY POINT, as it is constant.
***** How much of the tax is borne by consumers of the concerts? How do I figure this? Thank you.
To determine how much of the tax is borne by the consumers of the concerts, you need to consider the concept of tax incidence. Tax incidence refers to the distribution of the tax burden between consumers and producers.
In this situation, the tax is imposed on outdoor concerts, which are typically organized by producers. However, it is important to note that the burden of the tax can be shifted depending on the elasticity of demand and supply in the market.
To figure out how much of the tax is borne by consumers, you need to understand the elasticity of demand for outdoor concerts. If the demand for concerts is relatively elastic, meaning that consumers are sensitive to changes in price, then the producers may not be able to pass on the full burden of the tax to the consumers. In this case, consumers would bear a smaller portion of the tax burden.
Conversely, if the demand for concerts is relatively inelastic, meaning that consumers are not very responsive to changes in price, then producers may be able to pass on a larger portion of the tax to the consumers. In this case, consumers would bear a larger portion of the tax burden.
To determine the exact distribution of the tax burden between consumers and producers, you would need to analyze the elasticities of demand and supply for outdoor concerts in the specific market. This information can be obtained through market research, surveys, or empirical studies.
Therefore, without additional information about the elasticity of demand and supply, it is not possible to determine exactly how much of the tax is borne by consumers.