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Federal Margarine Act of 1886:

Federal Margarine Act of 1886: . imposed a 2 cent tax on margarine. Market for Margarine, 1885-1886 . Price (cents per pound). S 1885. D 1885. Quantity of Margarine (thousands of pounds per day). Market for Margarine, 1885-1886 . Price (cents per pound). S 1886. D 1886. Tax Wedge

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Federal Margarine Act of 1886:

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  1. Federal Margarine Act of 1886: imposed a 2 cent tax on margarine

  2. Market for Margarine, 1885-1886 Price (cents per pound) S1885 D1885 Quantity of Margarine (thousands of pounds per day)

  3. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  4. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  5. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  6. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  7. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  8. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  9. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  10. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  11. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  12. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  13. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  14. Who pays the tax? Assume that sellers have the legal liability to pay the tax. How does the tax affect the market for margarine?

  15. Market for Margarine, 1885-1886 Price (cents per pound) S1886 D1886 Quantity of Margarine (thousands of pounds per day)

  16. Figure 1. Market for Margarine, 1885-1886 Price (cents per pound) S1886 S1885 Tax shifts the supply curve up vertically by the amount of the tax D1885 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  17. Figure 1. Market for Margarine, 1885-1886 Price (cents per pound) S1886 S1885 Tax shifts the supply curve up vertically by the amount of the tax D1885 Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  18. Figure 1. Market for Margarine, 1885-1886 Price (cents per pound) S1886 S1885 Tax shifts the supply curve up vertically by the amount of the tax CB D1885 PB Tax Wedge goes between demand & supply Quantity of Margarine (thousands of pounds per day)

  19. Who Pays the Tax? • It does not depend on who has the legal liability. • It depends on the relative elasticities of demand and supply—more elastic more easily escapes the tax. • Commodity taxes raise revenue and create deadweight losses.

  20. The Secondary Ticket Market for World Series (Game 5) Tickets SEC ROW SEAT PRICE “Face Value” 307 17 11 $160 PAVILION DECK MLB 291773 Pavilion Deck Citizen’s Bank Park (CBP)

  21. Resale Market for Pavilion Deck Seats (PDS) to Game 5 of the 2008 World Series Face value of PDS = $160 Price of PDS = $560 Suppose: Supply: P=160+2Q Demand : P=960-2Q

  22. PPDS ($ per ticket) 200 400 QPDS Resale Market for Game 5 PDS Supply: P=160+2Q At Q=200 => P = 160+2(200) = 560 S 560 Opp Cost = Value of the next best alternative ≈ value of seeing the game to the ticket holder. 160

  23. PPDS ($ per ticket) 200 400 QPDS Resale Market for Game 5 PDS S 560 Opp Cost = Minimum amount that the ticket holder would accept for the 200th ticket 160

  24. PPDS ($ per ticket) 100 200 400 480 QPDS Resale Market for Game 5 PDS Demand : P=960-2Q At P= 0 => 0 = 960 – 2Q => Q = 960/2 = 480 960 760 560 Max WTP for the 100th PDS ticket 160 D

  25. PPDS ($ per ticket) 200 400 480 QPDS Resale Market for Game 5 PDS Consumer Surplus (CS): the excess of buyers WTP over what they paid sellers 960 S CS Producer Surplus (PS): the excess of the amount paid over the minimum WTA of sellers. PMKT 560 PS 160 D QMKT

  26. State anti-scalping laws PA anti-scalping law  resale price ≤ 25% over face value Repealed in July of 2007 Internet Ticket Retailers (e.g., Stubhub)

  27. PPDS ($ per ticket) 200 380 480 QPDS Resale Market for Game 5 PDS Suppose Anti-Scalping Law still existed and was stringently enforced. Illustrate the resulting shortage and the changes in consumer and producer surplus PLegal = (1.25)($160) = $200 960 S A B C F G ∆CS = C – B PMKT 560 ∆PS = – (C + F) Plegal = 200 160 D Shortage 20 QMKT QS at PLegal QD at PLegal

  28. Ticket Taxes vs. Chicago is suing Stubhub over Ticket Taxes Suppose Philadelphia imposes a tax of $160 per ticket on the secondary market for tickets.

  29. Up Vertically Taxes Shift Supply PPDS Philly tax = $160 per ticket STax (T) ($ per ticket) With tax, min WTA =$640 SNo Tax (NT) t=$160 With no tax, min WTA =$480 QPDS

  30. Ad Valorem versus Unit Taxes PTickets SNT SNT QTickets QTickets Ad Valorem Tax (Chicago Ticket Tax = 8%) Unit Tax (Philly Ticket Tax = $160) PTickets ST ST t t

  31. Ticket Taxes Philly tax = $160 per ticket PPDS PT–PNT = $80 < tax !!!!! ST ($ per ticket) SNT PT=640 PNT=560 QT QNT QPDS

  32. Ticket Taxes Philly tax = $160 per ticket PPDS PT–PNT = $80 < tax !!!!! ST ($ per ticket) SNT A B PT=640 Distance AB = tax PNT=560 PT–t=480 What the ticket resellers get to keep QT QNT QPDS

  33. PTicket QSRO How do you find PT−t? ST SNT PT (1) (2) PNT distance (2) = tax PT−t (3) D QT QNT

  34. Ticket Taxes PPDS Philly tax = $160 per ticket ($ per ticket) ST SNT PT=640 PNT=560 Consumer Burden PT–t=480 QT QNT QPDS

  35. Ticket Taxes PPDS Philly tax = $160 per ticket ($ per ticket) ST SNT PT=640 PNT=560 PT–t=480 Producer Burden QT QNT QPDS

  36. Ticket Taxes PPDS Philly tax = $160 per ticket ($ per ticket) Value of QT to QNT : ST SNT  current owners • hopeful bidders PT=640 PNT=560 Tax Revenue DWL PT–t=480 Tax prevents trades & net benefits of QT QNT QPDS

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