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Format: Layer, Start, End, Style, Name, MarginL, MarginR, MarginV, Effect, Text
Dialogue: 0,0:00:00.00,0:00:05.36,Default,,0000,0000,0000,,♪ [music] ♪
Dialogue: 0,0:00:09.47,0:00:11.54,Default,,0000,0000,0000,,- [Tyler] Today we begin\Nthe first of several talks
Dialogue: 0,0:00:11.54,0:00:13.41,Default,,0000,0000,0000,,on taxes and subsidies.
Dialogue: 0,0:00:13.41,0:00:15.57,Default,,0000,0000,0000,,We're not going to be talking\Nabout income taxes
Dialogue: 0,0:00:15.57,0:00:17.08,Default,,0000,0000,0000,,and income subsidies.
Dialogue: 0,0:00:17.08,0:00:19.94,Default,,0000,0000,0000,,Those are typically topics\Nfor macroeconomics.
Dialogue: 0,0:00:19.94,0:00:23.63,Default,,0000,0000,0000,,Instead, we'll be talking\Nabout taxes and subsidies on goods,
Dialogue: 0,0:00:23.63,0:00:26.47,Default,,0000,0000,0000,,like a sales tax\Nor a subsidy for wheat.
Dialogue: 0,0:00:26.47,0:00:30.19,Default,,0000,0000,0000,,These are also called\Ncommodity taxes and subsidies.
Dialogue: 0,0:00:30.19,0:00:31.65,Default,,0000,0000,0000,,So let's get going.
Dialogue: 0,0:00:35.75,0:00:38.07,Default,,0000,0000,0000,,We're going to be emphasizing\Nthree important ideas
Dialogue: 0,0:00:38.07,0:00:39.99,Default,,0000,0000,0000,,about commodity taxation.
Dialogue: 0,0:00:39.99,0:00:42.65,Default,,0000,0000,0000,,First, who pays the tax\Ndoes not depend
Dialogue: 0,0:00:42.65,0:00:45.44,Default,,0000,0000,0000,,on who writes the check\Nto the government.
Dialogue: 0,0:00:45.44,0:00:48.64,Default,,0000,0000,0000,,For example, suppose the government\Nis taxing apples.
Dialogue: 0,0:00:48.68,0:00:50.96,Default,,0000,0000,0000,,The government could make\Nthe buyer of apples
Dialogue: 0,0:00:50.96,0:00:53.14,Default,,0000,0000,0000,,pay for each apple that they buy.
Dialogue: 0,0:00:53.14,0:00:56.60,Default,,0000,0000,0000,,Or they could require the sellers\Nof the apples pay for each apple
Dialogue: 0,0:00:56.60,0:00:58.20,Default,,0000,0000,0000,,that they sell.
Dialogue: 0,0:00:58.21,0:01:00.77,Default,,0000,0000,0000,,What we're going to show is that,\Nfrom the point of view
Dialogue: 0,0:01:00.77,0:01:03.77,Default,,0000,0000,0000,,of the buyers or sellers,\Nit actually doesn't matter
Dialogue: 0,0:01:03.77,0:01:05.47,Default,,0000,0000,0000,,how the tax is placed.
Dialogue: 0,0:01:05.47,0:01:08.38,Default,,0000,0000,0000,,The actual outcomes\Nare going to be identical.
Dialogue: 0,0:01:08.44,0:01:11.69,Default,,0000,0000,0000,,Another way of putting this\Nis that the economic incidence
Dialogue: 0,0:01:11.69,0:01:15.36,Default,,0000,0000,0000,,of the tax, who actually pays\Nthe tax, does not depend
Dialogue: 0,0:01:15.36,0:01:18.83,Default,,0000,0000,0000,,on the legal incidence,\Nwho is in law required to write
Dialogue: 0,0:01:18.83,0:01:20.44,Default,,0000,0000,0000,,the check to the government.
Dialogue: 0,0:01:20.44,0:01:23.16,Default,,0000,0000,0000,,This will become a little bit\Nclearer as we go along.
Dialogue: 0,0:01:23.16,0:01:25.69,Default,,0000,0000,0000,,Don't worry about it\Nif it's not clear yet.
Dialogue: 0,0:01:25.88,0:01:28.62,Default,,0000,0000,0000,,The second key point,\Nwho pays the tax
Dialogue: 0,0:01:28.62,0:01:32.73,Default,,0000,0000,0000,,does depend on the relative\Nelasticities of demand and supply.
Dialogue: 0,0:01:33.32,0:01:36.78,Default,,0000,0000,0000,,In fact, we can summarize\Npoint one and point two by saying,
Dialogue: 0,0:01:36.78,0:01:40.72,Default,,0000,0000,0000,,who pays the tax depends not\Non the laws of congress
Dialogue: 0,0:01:40.72,0:01:43.56,Default,,0000,0000,0000,,but rather on the laws\Nof supply and demand.
Dialogue: 0,0:01:44.44,0:01:46.71,Default,,0000,0000,0000,,The third point\Nis that commodity taxation
Dialogue: 0,0:01:46.71,0:01:49.34,Default,,0000,0000,0000,,raises revenue,\Nbut it also takes away
Dialogue: 0,0:01:49.34,0:01:53.14,Default,,0000,0000,0000,,some gains from trade, that is,\Nit creates deadweight loss.
Dialogue: 0,0:01:53.38,0:01:55.81,Default,,0000,0000,0000,,We're going to be looking\Nat point one in this talk,
Dialogue: 0,0:01:55.81,0:01:58.02,Default,,0000,0000,0000,,and then we'll move on\Nto point two, and point three
Dialogue: 0,0:01:58.02,0:01:59.21,Default,,0000,0000,0000,,in later talks.
Dialogue: 0,0:01:59.21,0:02:00.96,Default,,0000,0000,0000,,So, let's start with point one.
Dialogue: 0,0:02:01.26,0:02:04.48,Default,,0000,0000,0000,,Let's begin our analysis\Nof commodity taxation
Dialogue: 0,0:02:04.48,0:02:07.46,Default,,0000,0000,0000,,by assuming the suppliers\Nare the one who have to send
Dialogue: 0,0:02:07.46,0:02:08.88,Default,,0000,0000,0000,,the check to the government.
Dialogue: 0,0:02:08.88,0:02:12.48,Default,,0000,0000,0000,,That is, the legal incidence\Nof the tax falls on the suppliers.
Dialogue: 0,0:02:13.27,0:02:15.70,Default,,0000,0000,0000,,What does a tax\Non the suppliers do?
Dialogue: 0,0:02:15.70,0:02:17.90,Default,,0000,0000,0000,,We can think about a tax\Non suppliers
Dialogue: 0,0:02:17.90,0:02:19.96,Default,,0000,0000,0000,,as increasing their costs.
Dialogue: 0,0:02:19.96,0:02:22.56,Default,,0000,0000,0000,,This is going to shift\Nthe supply curve up
Dialogue: 0,0:02:22.56,0:02:25.30,Default,,0000,0000,0000,,by the amount of the tax,\Nso the supply curve
Dialogue: 0,0:02:25.30,0:02:26.86,Default,,0000,0000,0000,,shifts up like this.
Dialogue: 0,0:02:27.63,0:02:30.11,Default,,0000,0000,0000,,Another way of thinking\Nabout this, is to remember
Dialogue: 0,0:02:30.11,0:02:33.24,Default,,0000,0000,0000,,that the supply curve tells us\Nthe minimum amount
Dialogue: 0,0:02:33.24,0:02:36.46,Default,,0000,0000,0000,,which suppliers require to offer\Na given quantity
Dialogue: 0,0:02:36.46,0:02:38.08,Default,,0000,0000,0000,,in the marketplace.
Dialogue: 0,0:02:38.08,0:02:42.37,Default,,0000,0000,0000,,The tax, that is going to increase\Nthe minimum amount that suppliers
Dialogue: 0,0:02:42.37,0:02:45.74,Default,,0000,0000,0000,,are requiring to offer\Nthat quantity in the marketplace.
Dialogue: 0,0:02:46.49,0:02:50.18,Default,,0000,0000,0000,,It shifts up that minimum amount\Nrequired by just the amount
Dialogue: 0,0:02:50.18,0:02:51.44,Default,,0000,0000,0000,,of the tax.
Dialogue: 0,0:02:52.02,0:02:55.02,Default,,0000,0000,0000,,With the new supply curve\Nwe find the new equilibrium.
Dialogue: 0,0:02:55.18,0:02:58.31,Default,,0000,0000,0000,,The market equilibrium\Nmoves from point A to point B.
Dialogue: 0,0:02:58.86,0:03:02.22,Default,,0000,0000,0000,,What we see is that of course,\Nthe quantity which is exchanged
Dialogue: 0,0:03:02.22,0:03:04.70,Default,,0000,0000,0000,,goes down, in addition,\Nthe price paid
Dialogue: 0,0:03:04.70,0:03:06.74,Default,,0000,0000,0000,,by the buyers goes up.
Dialogue: 0,0:03:06.78,0:03:08.84,Default,,0000,0000,0000,,How much do the suppliers get?
Dialogue: 0,0:03:08.84,0:03:12.66,Default,,0000,0000,0000,,The suppliers collect this amount,\Nthe price paid by the buyers,
Dialogue: 0,0:03:12.66,0:03:14.97,Default,,0000,0000,0000,,but now they have to give\Na certain amount of that,
Dialogue: 0,0:03:14.97,0:03:16.94,Default,,0000,0000,0000,,the tax to the government.
Dialogue: 0,0:03:16.94,0:03:21.07,Default,,0000,0000,0000,,The suppliers end up receiving\Nthis amount after tax, right here.
Dialogue: 0,0:03:21.60,0:03:24.86,Default,,0000,0000,0000,,In other words, what the tax does,\Nit means that the buyers
Dialogue: 0,0:03:24.86,0:03:27.49,Default,,0000,0000,0000,,pay more than before,\Nand the sellers receive
Dialogue: 0,0:03:27.49,0:03:29.22,Default,,0000,0000,0000,,less than before.
Dialogue: 0,0:03:29.22,0:03:32.19,Default,,0000,0000,0000,,Without any tax,\Nthe price the buyers pay
Dialogue: 0,0:03:32.19,0:03:35.11,Default,,0000,0000,0000,,is the same as the price\Nthe supplier receives.
Dialogue: 0,0:03:35.22,0:03:38.08,Default,,0000,0000,0000,,With the tax,\Nthe buyers pay a certain price,
Dialogue: 0,0:03:38.08,0:03:40.14,Default,,0000,0000,0000,,but the sellers get less than that.
Dialogue: 0,0:03:40.14,0:03:43.56,Default,,0000,0000,0000,,They get whatever the buyers pay\Nminus of course, the tax.
Dialogue: 0,0:03:44.06,0:03:46.87,Default,,0000,0000,0000,,That's the situation\Nwhen the suppliers pay the tax,
Dialogue: 0,0:03:46.87,0:03:50.03,Default,,0000,0000,0000,,or the suppliers have to send\Nthe check to the government.
Dialogue: 0,0:03:50.03,0:03:52.63,Default,,0000,0000,0000,,Let's now look at what happens\Nwhen it's the buyers
Dialogue: 0,0:03:52.63,0:03:54.60,Default,,0000,0000,0000,,who must send the check\Nto the government.
Dialogue: 0,0:03:55.58,0:03:58.14,Default,,0000,0000,0000,,Now, we look at the situation\Nwhen the legal incidence
Dialogue: 0,0:03:58.14,0:03:59.71,Default,,0000,0000,0000,,is on the buyers.
Dialogue: 0,0:03:59.71,0:04:03.62,Default,,0000,0000,0000,,We begin just as before\Nwith the equilibrium with no taxes.
Dialogue: 0,0:04:03.62,0:04:05.78,Default,,0000,0000,0000,,No taxes on sellers or buyers.
Dialogue: 0,0:04:05.78,0:04:08.32,Default,,0000,0000,0000,,Again, that equilibrium\Nis at point A.
Dialogue: 0,0:04:08.32,0:04:10.77,Default,,0000,0000,0000,,I've also included\Nthis supply curve here.
Dialogue: 0,0:04:10.77,0:04:14.07,Default,,0000,0000,0000,,This is the supply curve\Nwhen the tax is on the suppliers.
Dialogue: 0,0:04:14.07,0:04:16.72,Default,,0000,0000,0000,,It's the supply curve\Nfrom the previous problem.
Dialogue: 0,0:04:16.72,0:04:18.81,Default,,0000,0000,0000,,It's not relevant for this problem.
Dialogue: 0,0:04:18.81,0:04:21.50,Default,,0000,0000,0000,,I've included it rather\Nto remind us of where
Dialogue: 0,0:04:21.50,0:04:24.26,Default,,0000,0000,0000,,the equilibrium\Non the previous problem was.
Dialogue: 0,0:04:24.26,0:04:27.60,Default,,0000,0000,0000,,You can think of this\Nas a kind of ghost supply curve.
Dialogue: 0,0:04:27.60,0:04:30.31,Default,,0000,0000,0000,,It's a supply curve\Nfrom the previous problem
Dialogue: 0,0:04:30.31,0:04:32.24,Default,,0000,0000,0000,,coming back to haunt us.
Dialogue: 0,0:04:32.24,0:04:35.21,Default,,0000,0000,0000,,So what's the effect\Nof a tax on the demanders?
Dialogue: 0,0:04:35.21,0:04:37.02,Default,,0000,0000,0000,,Think about it this way.
Dialogue: 0,0:04:37.02,0:04:40.64,Default,,0000,0000,0000,,Suppose the most you were willing\Nto pay for an apple is $1.
Dialogue: 0,0:04:40.64,0:04:44.07,Default,,0000,0000,0000,,Again, most you're willing to pay\Nfor that apple, a dollar, no more.
Dialogue: 0,0:04:44.07,0:04:46.74,Default,,0000,0000,0000,,Now, suppose you learned\Nthat the government has instituted
Dialogue: 0,0:04:46.74,0:04:48.20,Default,,0000,0000,0000,,a new tax.
Dialogue: 0,0:04:48.20,0:04:51.60,Default,,0000,0000,0000,,For every apple you buy,\Nyou must now pay 25 cents
Dialogue: 0,0:04:51.60,0:04:52.76,Default,,0000,0000,0000,,to the government.
Dialogue: 0,0:04:52.76,0:04:54.38,Default,,0000,0000,0000,,Now, how much\Nare you willing to pay
Dialogue: 0,0:04:54.38,0:04:56.82,Default,,0000,0000,0000,,to suppliers for that apple?
Dialogue: 0,0:04:56.82,0:04:59.68,Default,,0000,0000,0000,,You're only willing to pay\Nthe maximum amount
Dialogue: 0,0:04:59.68,0:05:01.80,Default,,0000,0000,0000,,that you're going to be willing\Nto pay suppliers
Dialogue: 0,0:05:01.80,0:05:04.14,Default,,0000,0000,0000,,is now 75 cents.
Dialogue: 0,0:05:04.23,0:05:06.94,Default,,0000,0000,0000,,The maximum amount\Nthat apple was worth to you
Dialogue: 0,0:05:06.94,0:05:07.90,Default,,0000,0000,0000,,is a dollar.
Dialogue: 0,0:05:07.90,0:05:10.32,Default,,0000,0000,0000,,If you know you're going\Nto be taxed 25 cents
Dialogue: 0,0:05:10.32,0:05:11.70,Default,,0000,0000,0000,,if you buy that apple,
Dialogue: 0,0:05:11.70,0:05:13.87,Default,,0000,0000,0000,,then the most you're going\Nto be willing to pay the supplier
Dialogue: 0,0:05:13.87,0:05:18.62,Default,,0000,0000,0000,,is 75 cents, because 75 cents\Nplus the 25 cent tax
Dialogue: 0,0:05:18.62,0:05:21.14,Default,,0000,0000,0000,,to the government, that's $1.
Dialogue: 0,0:05:21.14,0:05:23.56,Default,,0000,0000,0000,,That's the most you're willing\Nto pay to get the apple.
Dialogue: 0,0:05:23.56,0:05:26.06,Default,,0000,0000,0000,,In other words, what a tax\Non demanders does
Dialogue: 0,0:05:26.06,0:05:28.16,Default,,0000,0000,0000,,is it reduces\Ntheir willingness to pay,
Dialogue: 0,0:05:28.16,0:05:30.73,Default,,0000,0000,0000,,and that means\Nthe demand curve shifts.
Dialogue: 0,0:05:30.73,0:05:34.34,Default,,0000,0000,0000,,Which way? The demand curve shifts\Ndown by the amount of the tax.
Dialogue: 0,0:05:35.11,0:05:36.52,Default,,0000,0000,0000,,So let's shift.
Dialogue: 0,0:05:36.52,0:05:39.83,Default,,0000,0000,0000,,The tax is exactly\Nthe same amount that it was before.
Dialogue: 0,0:05:39.83,0:05:43.28,Default,,0000,0000,0000,,Let's shift the demand curve\Ndown by the amount of the tax.
Dialogue: 0,0:05:43.92,0:05:45.68,Default,,0000,0000,0000,,We find now\Nthat the new equilibrium
Dialogue: 0,0:05:45.68,0:05:47.19,Default,,0000,0000,0000,,is at point B.
Dialogue: 0,0:05:47.19,0:05:50.16,Default,,0000,0000,0000,,Notice first of all,\Nthat the quantity has declined.
Dialogue: 0,0:05:50.16,0:05:54.07,Default,,0000,0000,0000,,The quantity exchange has declined\Nby exactly the same amount
Dialogue: 0,0:05:54.07,0:05:56.40,Default,,0000,0000,0000,,as before in the previous problem.
Dialogue: 0,0:05:57.30,0:05:59.81,Default,,0000,0000,0000,,What about the price\Nreceived by the sellers?
Dialogue: 0,0:05:59.81,0:06:02.08,Default,,0000,0000,0000,,The sellers now receive this price.
Dialogue: 0,0:06:02.08,0:06:05.28,Default,,0000,0000,0000,,Lo and behold,\Nthat's exactly the same price
Dialogue: 0,0:06:05.28,0:06:06.59,Default,,0000,0000,0000,,as it was before.
Dialogue: 0,0:06:07.36,0:06:09.58,Default,,0000,0000,0000,,How about the price\Npaid by the buyers?
Dialogue: 0,0:06:09.58,0:06:12.53,Default,,0000,0000,0000,,The buyers now pay\Nwhat they paid to the suppliers,
Dialogue: 0,0:06:12.53,0:06:15.31,Default,,0000,0000,0000,,plus they must pay the tax\Nto the government.
Dialogue: 0,0:06:15.31,0:06:17.42,Default,,0000,0000,0000,,This distance is the tax.
Dialogue: 0,0:06:17.42,0:06:20.94,Default,,0000,0000,0000,,Lo and behold, the price after tax\Npaid by the buyers
Dialogue: 0,0:06:20.94,0:06:23.63,Default,,0000,0000,0000,,is once again exactly\Nwhat it was when the tax
Dialogue: 0,0:06:23.63,0:06:25.57,Default,,0000,0000,0000,,was on the suppliers.
Dialogue: 0,0:06:26.28,0:06:29.83,Default,,0000,0000,0000,,When the tax is on the buyers,\Nthe buyers pay more than before.
Dialogue: 0,0:06:29.83,0:06:32.16,Default,,0000,0000,0000,,The sellers receive less\Nthan before
Dialogue: 0,0:06:32.16,0:06:34.12,Default,,0000,0000,0000,,by exactly the same amounts.
Dialogue: 0,0:06:34.12,0:06:36.88,Default,,0000,0000,0000,,The quantity declines\Nby the same amount, too.
Dialogue: 0,0:06:37.93,0:06:40.07,Default,,0000,0000,0000,,The net price,\Nor the total price paid
Dialogue: 0,0:06:40.07,0:06:42.22,Default,,0000,0000,0000,,by the buyers is the same.
Dialogue: 0,0:06:42.22,0:06:45.45,Default,,0000,0000,0000,,The total price received\Nby the sellers is the same.
Dialogue: 0,0:06:45.93,0:06:48.55,Default,,0000,0000,0000,,Now that you know the idea,\NI'm going to show you a simpler way
Dialogue: 0,0:06:48.55,0:06:50.18,Default,,0000,0000,0000,,of demonstrating this.
Dialogue: 0,0:06:50.21,0:06:52.62,Default,,0000,0000,0000,,What we just showed\Nis that it doesn't matter
Dialogue: 0,0:06:52.62,0:06:54.56,Default,,0000,0000,0000,,whether the suppliers\Nmust write the check
Dialogue: 0,0:06:54.56,0:06:57.15,Default,,0000,0000,0000,,to the government, or the demanders\Nmust write the check
Dialogue: 0,0:06:57.15,0:06:59.81,Default,,0000,0000,0000,,to the government\Nin order to pay the tax.
Dialogue: 0,0:06:59.85,0:07:02.11,Default,,0000,0000,0000,,In other words,\Nwe can analyze the tax
Dialogue: 0,0:07:02.11,0:07:04.56,Default,,0000,0000,0000,,by shifting the supply curve up,\Nor by shifting
Dialogue: 0,0:07:04.56,0:07:06.39,Default,,0000,0000,0000,,the demand curve down.
Dialogue: 0,0:07:06.97,0:07:09.55,Default,,0000,0000,0000,,As long as we analyze\Nthe same size tax,
Dialogue: 0,0:07:09.55,0:07:11.96,Default,,0000,0000,0000,,we're going to get\Nequivalent outcomes.
Dialogue: 0,0:07:11.96,0:07:15.45,Default,,0000,0000,0000,,It's going to come out the same\Nwhichever choice of tax we make.
Dialogue: 0,0:07:16.06,0:07:18.28,Default,,0000,0000,0000,,There's actually a simpler way\Nof thinking about this.
Dialogue: 0,0:07:19.11,0:07:21.27,Default,,0000,0000,0000,,What we can think\Nabout such a tax is doing,
Dialogue: 0,0:07:21.27,0:07:23.93,Default,,0000,0000,0000,,is driving a wedge\Nbetween what the buyer is paying
Dialogue: 0,0:07:23.93,0:07:25.76,Default,,0000,0000,0000,,and what the sellers receive.
Dialogue: 0,0:07:25.76,0:07:27.77,Default,,0000,0000,0000,,When there's no tax,\Nwhat the buyers pay
Dialogue: 0,0:07:27.77,0:07:31.07,Default,,0000,0000,0000,,is what the sellers receive,\Nbut when there's a tax,
Dialogue: 0,0:07:31.07,0:07:33.92,Default,,0000,0000,0000,,the buyers pay more\Nthan what the sellers receive.
Dialogue: 0,0:07:33.92,0:07:35.92,Default,,0000,0000,0000,,The difference\Nis what the government gets.
Dialogue: 0,0:07:35.92,0:07:38.24,Default,,0000,0000,0000,,The difference\Nis the amount of the tax.
Dialogue: 0,0:07:38.34,0:07:40.76,Default,,0000,0000,0000,,So let's think about this\Nas a tax wedge.
Dialogue: 0,0:07:41.22,0:07:44.98,Default,,0000,0000,0000,,Let's say this tax wedge,\Nthis side is, let's say a dollar.
Dialogue: 0,0:07:45.12,0:07:48.14,Default,,0000,0000,0000,,Another way of analyzing\Nthe tax is to drive this wedge
Dialogue: 0,0:07:48.14,0:07:50.89,Default,,0000,0000,0000,,into the diagram\Nuntil the top of the wedge
Dialogue: 0,0:07:50.89,0:07:53.36,Default,,0000,0000,0000,,hits the demand curve,\Nand the bottom of the wedge
Dialogue: 0,0:07:53.36,0:07:55.37,Default,,0000,0000,0000,,just touches the supply curve.
Dialogue: 0,0:07:55.42,0:07:56.77,Default,,0000,0000,0000,,Let's take a look.
Dialogue: 0,0:07:56.80,0:07:58.58,Default,,0000,0000,0000,,I'm going to drive the wedge in.
Dialogue: 0,0:07:58.58,0:08:00.89,Default,,0000,0000,0000,,What this tells us\Nis that the price the buyer pays
Dialogue: 0,0:08:00.89,0:08:03.01,Default,,0000,0000,0000,,will be here, point B.
Dialogue: 0,0:08:03.01,0:08:06.34,Default,,0000,0000,0000,,The price the suppliers receive\Nwill be point D.
Dialogue: 0,0:08:06.34,0:08:08.29,Default,,0000,0000,0000,,The difference is the tax.
Dialogue: 0,0:08:08.29,0:08:11.95,Default,,0000,0000,0000,,For instance, if the buyers\Nend up paying $2.65,
Dialogue: 0,0:08:11.95,0:08:16.14,Default,,0000,0000,0000,,then the sellers must receive $1.65\Nif the tax is a dollar.
Dialogue: 0,0:08:16.84,0:08:21.98,Default,,0000,0000,0000,,Similarly, if the suppliers receive\Na $1.65 and the tax is a dollar,
Dialogue: 0,0:08:21.98,0:08:24.100,Default,,0000,0000,0000,,the buyers must be paying $2.65.
Dialogue: 0,0:08:24.100,0:08:27.90,Default,,0000,0000,0000,,With this wedge, we could read\Noff the diagram
Dialogue: 0,0:08:27.90,0:08:31.39,Default,,0000,0000,0000,,the price the buyer pays,\Nthe price the seller receives,
Dialogue: 0,0:08:31.39,0:08:33.15,Default,,0000,0000,0000,,and the quantity exchanged.
Dialogue: 0,0:08:33.19,0:08:35.38,Default,,0000,0000,0000,,We don't even have\Nto shift any curves.
Dialogue: 0,0:08:35.38,0:08:37.97,Default,,0000,0000,0000,,We just drive the wedge\Ninto this diagram.
Dialogue: 0,0:08:38.58,0:08:40.30,Default,,0000,0000,0000,,Let's do an application.
Dialogue: 0,0:08:40.34,0:08:41.83,Default,,0000,0000,0000,,In the United States,
Dialogue: 0,0:08:41.83,0:08:45.11,Default,,0000,0000,0000,,under the Federal Insurance\NContributions Act -- FICA --
Dialogue: 0,0:08:45.11,0:08:49.16,Default,,0000,0000,0000,,12.4% of earned income\Nup to an annual limit
Dialogue: 0,0:08:49.16,0:08:54.64,Default,,0000,0000,0000,,must be paid into social security,\Nand 2.9%, an additional 2.9%
Dialogue: 0,0:08:54.64,0:08:57.07,Default,,0000,0000,0000,,must be paid into Medicare.
Dialogue: 0,0:08:57.07,0:09:00.06,Default,,0000,0000,0000,,Half of this amount comes directly\Nfrom the employee.
Dialogue: 0,0:09:00.06,0:09:02.48,Default,,0000,0000,0000,,You can see it\Non your own paychecks.
Dialogue: 0,0:09:02.48,0:09:05.34,Default,,0000,0000,0000,,This is the FICA tax,\Nand half the amount comes
Dialogue: 0,0:09:05.34,0:09:06.87,Default,,0000,0000,0000,,from the employer.
Dialogue: 0,0:09:06.87,0:09:10.39,Default,,0000,0000,0000,,The question is, does the fact\Nthat it's a 50/50 split,
Dialogue: 0,0:09:10.39,0:09:12.57,Default,,0000,0000,0000,,does this make a difference?
Dialogue: 0,0:09:12.60,0:09:15.39,Default,,0000,0000,0000,,Does this mean for example,\Nthat since the employer
Dialogue: 0,0:09:15.39,0:09:20.04,Default,,0000,0000,0000,,is paying half that this is necessarily\Na good deal for the employee?
Dialogue: 0,0:09:20.08,0:09:22.06,Default,,0000,0000,0000,,No, it doesn't mean that.
Dialogue: 0,0:09:22.06,0:09:25.82,Default,,0000,0000,0000,,What we now know\Nis that we could have 100%
Dialogue: 0,0:09:25.82,0:09:29.95,Default,,0000,0000,0000,,of this tax paid by the employee,\Nor we could have 100%
Dialogue: 0,0:09:29.95,0:09:32.40,Default,,0000,0000,0000,,of this tax paid by the employer.
Dialogue: 0,0:09:32.40,0:09:35.57,Default,,0000,0000,0000,,This wouldn't make a difference,\Nnot to wages, not to prices,
Dialogue: 0,0:09:35.57,0:09:37.20,Default,,0000,0000,0000,,not to anything.
Dialogue: 0,0:09:37.20,0:09:39.92,Default,,0000,0000,0000,,It would change\Nthe legal incidence of the tax,
Dialogue: 0,0:09:39.92,0:09:43.26,Default,,0000,0000,0000,,but it would not change\Nthe final economic incidence.
Dialogue: 0,0:09:44.02,0:09:46.95,Default,,0000,0000,0000,,I haven't said here\Nwho actually pays the tax.
Dialogue: 0,0:09:46.95,0:09:48.59,Default,,0000,0000,0000,,That's what we're going\Nto be talking about
Dialogue: 0,0:09:48.59,0:09:49.93,Default,,0000,0000,0000,,in the next lecture.
Dialogue: 0,0:09:49.93,0:09:52.34,Default,,0000,0000,0000,,What I've said here\Nis that it doesn't matter
Dialogue: 0,0:09:52.34,0:09:55.19,Default,,0000,0000,0000,,who pays the tax\Nfrom a legal point-of-view
Dialogue: 0,0:09:55.19,0:09:57.46,Default,,0000,0000,0000,,of who is obliged\Nto deliver that money.
Dialogue: 0,0:09:57.46,0:10:00.38,Default,,0000,0000,0000,,So the legal incidence again,\Ndoes not have a bearing
Dialogue: 0,0:10:00.38,0:10:02.68,Default,,0000,0000,0000,,on the economic incidence\Nof the tax.
Dialogue: 0,0:10:03.51,0:10:05.52,Default,,0000,0000,0000,,What we're going to talk\Nabout in the next lecture
Dialogue: 0,0:10:05.52,0:10:09.06,Default,,0000,0000,0000,,is what does determine\Nthe economic incidence of a tax.
Dialogue: 0,0:10:09.53,0:10:12.93,Default,,0000,0000,0000,,It turns out to be elasticities\Nof supply and demand,
Dialogue: 0,0:10:12.93,0:10:15.60,Default,,0000,0000,0000,,and that's what we'll take up\Nin the next lecture.
Dialogue: 0,0:10:15.73,0:10:17.45,Default,,0000,0000,0000,,Thanks again for listening.
Dialogue: 0,0:10:18.52,0:10:20.18,Default,,0000,0000,0000,,- [Narrator] If you want\Nto test yourself,
Dialogue: 0,0:10:20.18,0:10:22.39,Default,,0000,0000,0000,,click "Practice Questions."
Dialogue: 0,0:10:22.39,0:10:25.72,Default,,0000,0000,0000,,Or if you're ready to move on,\Njust click "Next Video."
Dialogue: 0,0:10:25.72,0:10:30.80,Default,,0000,0000,0000,,♪ [music] ♪