Ministry of higher and secondary education of the republic of uzbekistan tashkent insititute of finance

MINISTRY OF HIGHER AND SECONDARY EDUCATION OF THE REPUBLIC OF UZBEKISTAN

TASHKENT INSITITUTE OF FINANCE


SELF STUDY
Supervisor: Islomova T.
Performer: Ikramov S.
Tashkent-2022
Self study 7
Task 1. Make up sentences with the following words.
elasticity
elastic demand
elastic supply
tax incidence
unitary elasticity
wage elasticity of labor supply
zero inelasticity
equal percentage
changes in price
quantity of savings


Task 2. Translate the given sentences into your native language.
1. If demand is more inelastic than supply , consumers bear most of the tax burden.
2.If supply is more inelastic than demand, sellers bear most of the tax burden.
3. When the demand is inelastic, consumers are not very responsive to price changes.
4. The tax would result in a much lower quantity sold instead of lower prices received.
5. By introducing taxes, the government essentially creates a wedge between the price paid by consumers Pc and the price received by producers Pp


Task 3 . Write the summary to the given text


Elasticity and Tax Incidence
The example of cigarette taxes demonstrated that because demand is inelastic, taxes are not effective at reducing the equilibrium quantity of smoking, and they mainly pass along to consumers in the form of higher prices. The analysis, or manner, of how a tax burden is divided between consumers and producers is called tax incidence. Typically , the tax incidence, or burden, falls both on the consumers and producers of the taxed good. However, if one wants to predict which group will bear most of the burden, all one needs to do is examine the elasticity of demand and supply . In the tobacco example, the tax burden falls on the most inelastic side of the market. If demand is more inelastic than supply , consumers bear most of the tax burden, and if supply is more inelastic than demand, sellers bear most of the tax burden. The intuition for this is simple. When the demand is inelastic, consumers are not very responsive to price changes, and the quantity demanded reduces only modestly when the tax is introduced. In the case of smoking, the demand is inelastic because consumers are addicted to the product. The government can then pass the tax burden along to consumers in the form of higher prices, without much of a decline in the equilibrium quantity. Similarly, when a government introduces a tax in a market with an inelastic supply , such as, for example, beach front hotels, and sellers have no alternative than to accept lower prices for their business, taxes do not greatly affect the equilibrium quantity . The tax burden now passes on to the sellers. If the supply was elastic and sellers had the possibility of reorganizing their businesses to avoid supplying the taxed good, the tax burden on the sellers would be much smaller. The tax would result in a much lower quantity sold instead of lower prices received. By introducing a tax, the government essentially creates a wedge between the price paid by consumers Pc and the price received by producers Pp. In other words, of the total price paid by consumers, part is retained by the sellers and part is paid to the government in the form of a tax. The distance between Pc and Pp is the tax rate. The new market price is Pc, but sellers receive only Pp per unit sold, as they pay Pc-Pp to the government. Since we can view a tax as raising the costs of production, this could also be represented by a leftward shift of the supply curve, where the new supply curve would intercept the demand at the new quantity Qt.