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Help me please in economics.?

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Help me please in economics.?

Postby brayden » Mon Aug 06, 2012 9:43 am

The state of California recently considered passing a tax on the services of doctors in that state in order to raise revenue to pay for universal health coverage for California residents. Suppose the average open heart surgery costs $100,000, and at that price 23,339 surgeries are performed each year.

For the purpose of this analysis, assume that people could get the surgery elsewhere.

Which curve on the supply and demand graph would shift? What happens to producer and consumer surpluses? What happens to deadweight loss? Fully explain what the most likely outcome would be in this market if a tax on surgeries is implemented. Use a graph if it will help.
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Help me please in economics.?

Postby neo » Mon Aug 06, 2012 9:44 am

which curve will shift depends upon on whom the tax is imposed.. if its imposed upon the doctors then the supply curve will shift upwards by the amnt of the tax.
generally demand for doctor's services r considered perfctly inelastic in nature,but here it has been clearly mentioned dt people could gt the surgery done elsewhre so the curve nomore remains perfectly inelastc bt rathr bcmes normal dwnward sloping.so the imposition of tax RAISES THE PRICE PAID BY THE BUYERS AND LOWERS THE PRICE RETAINED BY THE SELLERS .the amt. of quantity traded reduces in this new situation.

since price to buyers rises so consumer surplus reduces and since price to the sellers decreases so the producer surplus also decreases.
previously no deadweight loss was presnt bt due to the imposition some amnt of qauntity traded wl shrink so deadweight loss is created in the economy nw.




NOTE : if people had INELASTIC demand curve then the price to buyers would have risen by the whole amount of the tax.and price to sellers would nt have fallen.and no deadweight loss would have been created in the economy evn aftr the imposition as quantity of amt. traded would have thn remained the same.
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