Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050



Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

Suppose the government removes a tax on buyers of a good and levies a tax of the same size on sellers of the good. How does this change in tax policy affect the price that buyers pay sellers for this good, the amount buyers are out of pocket (including any tax payments they make), the amount sellers receive (net of any tax payments they make), and the quantity of the good sold?

To determine
The impact of changing tax on consumers to sellers.


The tax is the unilateral payment from the people to the government. Tax is the main source of income of the government which can be used for carrying on the public expenditure of the government. The efficient tax is the tax which has the lowest excess burden compared to the revenue raised from the tax. The excess burden is known as the deadweight loss.

When the tax is removed from the consumers, they will earn the reduced tax amount in the nominal terms. But the government imposes the removed tax on the sellers with the same magnitude which means that the producers have to pay the tax...

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