00:01
So first, let's do this market without the tax, just as a baseline of comparison.
00:07
So a market is a story about prices and quantities, and over here in the no tax, we're told there's an upward sloping supply curve, a downward sloping demand curve.
00:19
That intersection yields equilibrium, right? equilibrium.
00:24
That yields an equilibrium quantity and price.
00:28
And consumer surplus and producer surplus, right? producer surplus reflects the difference between the price and the supply curve, while consumer surplus reflects the difference between the demand and the curve and the price, right? there is no government revenue and there's no deadweight loss because when there's no tax, you've got an efficient market.
00:48
The market, the government's not involved, there's no tax, there's no money to raise, and when supply is equal to demand, in general, you don't have any deadweight loss.
00:58
But if we impose a tax, quantity and price, again, i'm going to try to draw the exact same market, supply and demand.
01:09
Now we're going to have a tax.
01:11
And that tax is going to change the one of the supply curve, right? so here, you're going to have a different supply curve because the tax is increasing the cost of bringing pizza to market.
01:25
If the government says, i'm going to collect the tax every time you sell a pizza, the total cost of supplying that pizza to the market is increased because now that tax is an extra cost.
01:37
So we have a new equilibrium quantity and a new equilibrium price, right? but we also have this gap between the price paid and the price received, right? so this pf is the price received by the firm, right? that's why i'm calling it f for firm...