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Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts

8/20/18

The effect of an income tax on the labor market

10:06
The effect of an income tax on the labor market
This post was updated August 2018 with new information and examples.

We all feel the pinch from an income tax on our lives, but how does it affect the overall labor market?  The intuition behind shifts in demand and supply are a bit different in the labor market vs. shifts in the traditional goods and services market. This post will go over the effect of an income tax on the labor market, and discuss some ways to help develop the intuition of why this is important in the labor market..

Take a look at the typical supply and demand model on the left for your typical labor market.  Here S represents the supply of labor, people like you and me who apply for, and work at jobs to receive a salary.  The higher the salary offered, the more people are willing to work, either by getting a job at all, or their willingness to work more hours.  This is why the labor supply curve (the S curve) is upward sloping.  The curve D represents demand for labor.  This would be corporations and businesses that need labor as an input in their production process.  These businesses are willing to hire more labor (perhaps new people are pay them for additional hours works) if they can get it for a cheaper price, which is why the D curve slopes down.

But what happens in this labor market when an income tax is introduced? 

8/15/15

The effect of taxes on supply and demand

14:20
The effect of taxes on supply and demand
One form of government intervention is the introduction of taxes. Taxes are typically introduced to increase government revenue, but they also have the effect of raising the cost of goods and services to the consumer. Because of the increased cost, we generally see a reduction in the quantity of goods and services produced and consumed after the introduction of taxes. A common form of tax is a sales tax, which is added on to the price of a product and paid by the consumer. Another common type of tax is a VAT (value added tax) which is paid by the producer along their production chain.

5/27/12

Examples of horizontal vs vertical equity

23:59
Examples of horizontal vs vertical equity

While the discussion between horizontal and vertical equity generally applies to tax policy, we can also look at the class economics definition for the two terms and go over a few examples.  

Horizontal equity means that we apply the exact same policy to people in the same situation. For example if two people earn both earn $25,000 per year they should both pay the same amount of tax. This means that if we have horizontal equity, we try to make sure that we do not make decisions based on non-income characteristics like ethnicity, gender, weight, sexual orientation, or job status.

4/12/12

Monopoly math problem with a tax

23:46
Monopoly math problem with a tax

This post goes over the algebraic methods necessary to solve common economics monopoly problems.  We assume that you are given a basic demand function and marginal cost function, and are asked to derive marginal revenue function and find out what the monopoly price and quantity will end up being.

First we are probably given either a demand function (solved for Q) or an inverse demand function (solved for P).  We need the inverse demand function because this gives us the slope of the demand curve (since P is on the Y axis).  Once we have the inverse demand function we can solve for the marginal revenue function by doubling the slope (making it steeper).  A past post goes over the math behind calculating monopoly equilibrium price and quantity, so I will go over another example really quickly then introduce the idea of combining demand curves and adding a tax into the mix.

3/15/12

Car market with tariffs, and export restraints

22:06
Car market with tariffs, and export restraints

Sometimes it can be difficult figuring out how tariffs and export restraints would impact a market.  This article goes over the economics of America cars being sold in Cuba.  It compares the outcome of two different possible government regulations, and how they would impact the market.  Here is the question below:

Suppose that the demand function for American cars here in Cuba was Q=60-4P, where P is the price charged in hundreds of thousands of dollars and Q is the number of cars (in thousands) sold in Cuba each year.

(a) If the supply schedule is horizontal at a price of $1,000,000, how many American cars would be sold in Cuba?

2/21/12

Budget constraint and welfare/tax breaks

01:33
Budget constraint and welfare/tax breaks

2/17/12

Calculating equilibrium and surplus with a tax, a question and answer

06:23
Calculating equilibrium and surplus with a tax, a question and answer

This intensive economics question goes over calculating equilibrium price and quantity, then using those numbers to get consumer and producer surplus, and finally implementing a tax to see how that will change the previous results:

1. The inverse demand curve (or average revenue curve) for the product of a perfectly competitive industry is give by p=80-0.5Q where p is the price and Q is the quantity. The short-run industry marginal cost function is MC=50+0.25Q

a) Calculate the equilibrium price and quantity assuming perfect competition and profit maximization and hence calculate the consumer and producers' surplus.