Tax Incidence

Elasticity of Demand and Taxation Many products are subject to indirect taxation imposed by the government. Good examples include the excise duty on cigarettes (cigarette taxes in the UK are among the highest in Europe) alcohol and fuels. Here we consider the effects of indirect taxes on a producers costs and the importance of price … Continue reading

Substitution and Output Effects

Let factor inputs are substitutes, and the price of one factor input (input 1) has changed. How will demand change for second factor input (input 2)? Price of input1(Price of substitute) SE vs OE Demand for input2 increase SE > OE increase increase SE < OE decrease decrease SE > OE decrease decrease SE < … Continue reading

Costs

Production and Cost Minimization <– Click the link above to access an explanation of cost minimization. Let y – firm’s output, TC(y) – total cost, ATC(y)= TC(y)/y – average total cost. Given TC = VC+FC – the sum of fixed and variable cost. And, it must be borne in mind – the short run differs from … Continue reading

Firms and Technology

Firms and Technology <– Click the link above to access an explanation of Firms and Technology, including information on Special Isoquants.     Isoquants show the locus of input combinations for which output is constant. Isoquants cannot cross. Marginal rate of substitution which measures the slope of an isoquant. The isoquants for perfect substitutes are parallel … Continue reading

Producer Theory

Short Run Cost Curves from Short Run Production:   The Firm’s Supply Curve from Marginal Cost:   Industry Supply Curves and the Role of Entry and Exit:   Relating Short Run and Long Run Cost curves:   Consumer and Producer Supply: