Percentage tax on hamburgers | Microeconomics | Khan Academy

TL;DR

Applying a percentage tax on hamburgers shifts the supply curve upwards, resulting in reduced equilibrium quantity and a loss of surplus for consumers, producers, and the government.

Transcript

Voiceover: In the last video on taxing hamburgers, I did a somewhat artificial thing where I taxed hamburgers with an absolute dollar amount. Typically, consumption taxes are a percentage of the actual price of the goods. For example, sales taxes might be 8% or 9% of whatever you are buying. Let's think about how the supply curve, as perceived by t... Read More

Key Insights

• ❓ Percentage taxes, like sales taxes, increase the perceived price for consumers.
• 😀 Producers require higher prices to cover their opportunity cost when faced with a percentage tax.
• 📈 The supply curve shifts upwards by 20% with each increase in quantity and price due to taxation.
• 🚕 The equilibrium quantity decreases as a result of the tax.
• 🌸 Taxation creates deadweight loss, reducing consumer and producer surplus.
• 🚕 Tax revenue for the government is determined by the height and width of the supply curve shift.
• 😚 Producers and consumers lose surplus due to the tax.

Questions & Answers

Q: How does a percentage tax on hamburgers affect the supply curve?

A percentage tax on hamburgers shifts the supply curve upwards, causing producers to demand a higher price per hamburger to cover their opportunity cost.

Q: How does the price increase affect consumers?

Consumers will have to pay the increased price plus the percentage tax, resulting in a higher cost per hamburger.

Q: What happens to the equilibrium quantity with a percentage tax?

The equilibrium quantity decreases due to the higher prices and reduced consumer demand caused by the tax.

Q: Why is taxation considered inefficient?

Taxation leads to a loss of surplus for consumers, producers, and the government, known as deadweight loss, as it reduces economic activity and restricts the benefits that were present before taxation.

Summary & Key Takeaways

• Percentage taxes on goods, like sales taxes, affect the supply curve as perceived by consumers by increasing the price of the product.

• Producers will demand a higher price for each hamburger to cover their opportunity cost, and consumers will have to pay the increased price plus the percentage tax.

• The supply curve shifts 20% upwards with each increase in quantity and price, leading to a reduction in equilibrium quantity, loss of surplus, and deadweight loss.