Questions about course content for Econ 441, Summer 2003

July 22:

> I still do not understand why the result from imposing a production tax on
> good Y is the same as imposing a consumption tax on good Y. I understand the
> basic idea but when I draw a graph I got confuse.

First, that is only true in autarky, and there it is because in
equilibrium the quantities of production and consumption are the same. 
To see it better, note first that if we collect the tax from producers,
then what they get to keep will be less than what consumers have paid,
by the percent of the tax.  And if we collect it from consumers, then
what they have to pay will be more than what gets to producers, also by
the percent of the tax.  So in both cases, we must have the price paid
by consumers higher than the price received by producers by the amount
of the tax, and this does not depend on who the tax is collected from. 
Now the behavior of consumers depends on the price they pay, whether or
not they think part of it is going to the government.  And the behavior
of producers depends on the price they get to keep, whether or not they
think it has been lowered by the government.  So these prices -- paid by
consumers and received by producers -- must adjust in equilibrium so
that what the one supplies the other demands, and this will be the same
regardless of who thinks they are being taxed.

July 15:

> Question on #2b of problem set #2:
> Does the answer you gave in your solution hold true for all cases, or is it
> based on how you draw your PPF?

It depends on both the quantities of the goods and the preferences, so
yes, it depends on how you draw things.  I tried to make that clear in
my answer, but apparently I did not.

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