Think Like An Economist S E12: When Governments Intervene - Taxes, Price & Quantity Regulations
8 snips
Oct 6, 2020 AI Snips
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Markets Still Drive Outcomes
- Government actions change incentives but do not suspend supply and demand forces.
- Market forces still determine prices and quantities after regulation or taxes are applied.
Taxes Shift Burdens Via Elasticities
- A tax raises costs and the market finds a new equilibrium with a shared burden between buyers and sellers.
- Who formally pays the tax does not determine who ultimately bears it; elasticities do.
Philadelphia Soda Tax Example
- Philadelphia's 30 cent sweetened beverage tax raised retail prices and reduced purchases, illustrating law of demand.
- The resulting surplus pushed prices down until a new equilibrium emerged.