1. 1. Define Excise Tax Per unit tax on production =
Increase in marginal cost
Increase cost of producing each additional good

2. 2. What are the two goals of issuing an excise tax ?
Increase tax revenue
Decrease consumption of…. (harmful)
Common Example –
tobacco

3. 4. D is perfectly inelastic and a tax is placed on suppliers.
Were the goals of the excise tax met?
Revenue?
Decrease Consumption?
The burden of this tax falls on?

4. 5. D is perfectly elastic and a tax is placed on suppliers.
Were the goals of the excise tax met?
Revenue?
Decrease Consumption?
The burden of this tax falls on?

5. 6. S is perfectly inelastic and a tax is placed on buyers.
Were the goals of the excise tax met?
Revenue?
Decrease Consumption?
The burden of this tax falls on?

6. 7. S is perfectly elastic and a tax is placed on buyers.
Were the goals of the excise tax met?
Revenue?
Decrease Consumption?
The burden of this tax falls on?

7. 8. What is the goal of placing a subsidy on a good?
Can increase or decrease production
But goal is to benefit society
Decreases the marginal cost

8. One Example: want to increase the production- so provide incentive with subsidy to the producers ….= increased Q with lower prices …the additional costs of production are covered by the subsidy