Who bears the burden of a tax? Buyers or sellers? Why is it that the more elastic side of the market will pay a smaller share of a tax. Again, we’ll apply what we

Who bears the burden of a tax? Buyers or sellers? Why is it that the more elastic side of the market will pay a smaller share of a tax. Again, we’ll apply what we know to the example of Social Security taxes and also look at the health insurance mandate as a part of the Affordable Care Act. Who pays for the mandate? The employers or the workers? We’ll also look at supply and demand of labor. Is the demand for labor more elastic than the supply?

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Show 3 Answers (Answer provided by Alex Tabarrok)
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Without giving away the answer - note that the second question is asking when will a *high* tax be *necessary*.

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Got tricked as well: would it be more accurate to ask about a "high tax rate" rather than a "higher tax rate"?

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Got tricked as well: would it be more accurate to ask about a "high tax rate" rather than a "higher tax rate"?

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Show 1 Answer (Answer provided by Alex Tabarrok)
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Good question. Our categories, luxury, larger category, large expenditure and so forth--are rules of thumb that give us a way of comparing items. Luxuries would generally be more elastic than non-luxuries and that was the implicit context of the question. If we had asked luxuries or yachts then the answer would be, luxuries are less elastic than yachts so it's all relative.

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Show 1 Answer (Answer provided by Alex Tabarrok)
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Yes, the analysis wouldn't apply directly, however, but in the case of the minimum wage we might be interested in whether the increased cost would be passed on to consumers or paid by laborers or by firm owners. We could think of the minimum wage as a tax on labor and work through that analysis - it would be more complicated, however!

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