00:01
Once again, welcome to a new problem.
00:04
This time we're dealing with taxes.
00:07
And taxes obviously are going to have an influence on consumers, producers, or what we call suppliers, consumers provide, producers provide the supply of products, and consumers provide the demand of products.
00:31
So whenever you levy taxes, there is an impact on both consumers and producers.
00:39
And for the most part, the government benefits from taxation, but also the inherent losses, the inherent losses to the society, because of taxation.
01:00
So there's always going to be losses when you're dealing with taxation.
01:07
The demand and supply graph, your typical demand and supply graph has the y axis, which you call the prize, and then it has the x -axis, which you call the quantity.
01:22
And so there's a relationship between price and quantity.
01:26
For the supply, for example, as you increase the prices, you can see that the quantity supplied is going to go up.
01:34
For the demand on the other hand, if you increase the prices, the quantity demanded is going to go down because it's more expensive.
01:43
The central portion where these two lines meet represents the equilibrium market price, which you call pm.
01:53
This is your market price.
01:55
And also it also represents your equilibrium market quantity.
02:03
So pm and qm.
02:06
These are your equilibrium.
02:08
Maybe we could call these cqe, that's the equilibrium quantity.
02:14
So the supplier, the producers, and the consumers have an agreement on the level of quantity applied and so the market the market decides the price and the quantity if you levy taxes for businesses if you introduce taxes there's obviously going to be a wage that represents the tax value so on on one hand you have the price that the buyers pay which we're going to call p of b so buyers pay this prize, you know, p of b would be buyer's prize.
03:02
And then we also have the price that sellers take, which we're going to call p of m.
03:10
These two locations are critical locations when it comes to taxation.
03:16
So we have p of b and we also have p of m.
03:21
And so the gap between them is the actual tax that the government collects.
03:27
So the government is going to collect the price, the difference between the price that consumers pay and the price that produces received, that's going to be your tax value.
03:40
And of course at this point you can see that this is the quantity that consumers are willing to buy when taxes are introduced.
03:51
So it's a shift from the equilibrium quantity.
03:55
It's a shift downwards because of the extra expenses.
03:59
So in total, if you want to find the revenue that the government gets, the tax revenue, we have to take the quantity that consumers typically buy, which is q of t when taxes are levied, and then we multiply that by the amount of taxes, which is pb minus pq.
04:20
But one other problem with taxes is the fact that it introduces a portion called the dead weight loss.
04:30
The dead weight loss.
04:32
And the dead weight loss, you could see it's rectangular.
04:37
So if you flip it, you will see that the base of the rectangle is the amount of tax that the government collects.
04:48
And then the height of the rectangle is the difference.
04:53
So on this side, on the top side, you have pb.
04:56
On the bottom side you have pm.
04:58
So pb is the price that buyers pay.
05:01
And pm is the price that the sellers accept.
05:07
And then there is also the height of a triangle, which represents the gap between the quantity, the equilibrium quantity, qe.
05:17
And the quantity that consumers buy when you introduce the taxes...