At Fenway Park, home of the Boston Red Sox, seating is limited to about 38,000 Hence, the number of

Summary

The script discusses the impact of a tax on ticket sales, emphasizing that the tax is levied on buyers, not sellers. With a fixed supply of 38,000 tickets, the supply curve is perfectly inelastic. The tax shifts the demand curve leftward, reducing the equilibrium price from P to P1. The burden of the tax is entirely absorbed by the seller (Red Sox), as they cannot adjust supply, resulting in lower ticket prices. Buyers continue to pay the same price, indicating no burden shift to them.

Takeaways

• 💼 The tax is levied on the buyer, not the seller, which influences the demand side of the market.
• 🎟️ The number of tickets is fixed at 38,000, making the supply perfectly inelastic.
• 📉 The supply curve is a vertical line at 38,000 tickets, indicating no change in quantity supplied with price changes.
• 📊 The demand curve is downward sloping, showing the typical relationship between price and quantity demanded.
• 📉 The imposition of the tax causes the demand curve to shift leftwards, indicating reduced demand at each price level.
• 💸 The new equilibrium price after the tax (P1) is lower than the original equilibrium price (P).
• 💵 The difference between the original price (P) and the new price (P1) is $5, representing the tax amount.
• 💸 The buyer's burden from the tax is zero, as they continue to pay the same price (P) after the tax is levied.
• 🏭 The seller (Red Sox) bears the full burden of the tax, amounting to $5, due to the inability to adjust the supply.
• 📉 The seller absorbs the entire tax by lowering ticket prices, resulting in a lower equilibrium price (P1).

Q & A

Who bears the tax burden according to the transcript?

According to the transcript, the tax burden is borne entirely by the seller, represented by the Red Sox in this scenario, since they cannot alter the supply of tickets which is fixed at 38,000.

Why is the supply curve described as perfectly inelastic?

The supply curve is described as perfectly inelastic because the number of tickets is fixed at 38,000, meaning that the quantity supplied does not change with price changes.

How does the tax affect the demand curve?

The tax affects the demand curve by causing it to shift leftwards, indicating that at any given price, there will be a lower quantity demanded due to the increased cost to the buyer.

What is the original equilibrium price before the tax is implemented?

The original equilibrium price before the tax is implemented is denoted as 'P' in the transcript.

What is the new equilibrium price after the tax is implemented?

The new equilibrium price after the tax is implemented is denoted as 'P1', which is lower than the original equilibrium price 'P'.

How much does the tax affect the price?

The tax results in a price difference of $5 between the original equilibrium price 'P' and the new equilibrium price 'P1'.

Why does the buyer not bear any tax burden according to the transcript?

The buyer does not bear any tax burden because they continue to pay the same price 'P' after the tax is levied, as the seller absorbs the entire tax through lower ticket prices.

What is the implication of the tax being levied on the buyer?

The implication of the tax being levied on the buyer is that it affects the demand side of the market, causing the demand curve to shift leftwards and leading to a new equilibrium at a lower price.

Why is the supply curve represented as a vertical line?

The supply curve is represented as a vertical line because it is perfectly inelastic, indicating that the quantity supplied does not change regardless of the price.

What is the significance of the fixed number of tickets at 38,000?

The significance of the fixed number of tickets at 38,000 is that it sets a limit on the supply, making the supply curve perfectly inelastic and affecting how the tax impacts the market.

How does the tax impact the seller's revenue?

The tax impacts the seller's revenue by reducing the equilibrium price from 'P' to 'P1', meaning the seller absorbs the tax through lower ticket prices, effectively reducing their revenue.

Outlines

00:00

💼 Impact of Tax on Buyers and Sellers

This paragraph discusses the implications of a tax levied on buyers rather than sellers in a market scenario with a fixed supply of tickets. The speaker explains that the tax affects the demand curve, causing it to shift leftwards and resulting in a lower equilibrium price. The burden of the tax is entirely absorbed by the seller, represented by the Red Sox in this context, as they cannot adjust the fixed supply of 38,000 tickets. Consequently, the seller experiences a decrease in ticket prices, while buyers continue to pay the same price as before the tax was implemented.

Keywords

💡tax

A tax is a compulsory financial charge imposed by a government on workers and businesses to fund spending on public services. In the context of the video, the tax is levied on the buyer of tickets, which means it is an additional cost that the buyer must pay when purchasing the tickets. The video discusses how the imposition of this tax affects the demand for tickets, leading to a shift in the demand curve and a subsequent change in the equilibrium price.

💡buyer

A buyer is an individual or entity that purchases goods or services. In the video, the focus is on how the tax burden falls on the buyer of the tickets. The buyer's willingness to pay is influenced by the tax, which in turn affects the overall demand for the tickets, demonstrating the direct impact of taxation on consumer behavior.

💡seller

A seller is an individual or entity that offers goods or services for sale. The video clarifies that the tax is not levied on the seller in this scenario, meaning the seller does not have to pay the tax directly. However, the seller (the Red Sox in the example) is indirectly affected because they must adjust the ticket prices to absorb the tax, which impacts their revenue.

💡tickets

Tickets in this context refer to the entry passes for an event, such as a sports game. The video uses tickets as the commodity being taxed. The number of tickets is fixed at 38,000, which is a key point because it establishes a fixed supply, a critical factor in understanding how the tax affects the market.

💡fixed

The term 'fixed' in the video refers to a quantity that does not change. The number of tickets available is fixed at 38,000, creating a perfectly inelastic supply curve. This means that regardless of the price, the quantity supplied remains constant, which is a fundamental aspect of the economic model discussed in the video.

💡perfectly inelastic

Perfectly inelastic supply means that the quantity supplied does not respond to changes in price. The video uses this concept to describe the supply of tickets, which is fixed at 38,000. This is important because it sets the foundation for understanding how the tax impacts the market equilibrium without altering the supply side.

💡supply curve

A supply curve graphically represents the relationship between the price of a good and the quantity that producers are willing to supply. In the video, the supply curve for tickets is vertical and perfectly inelastic, indicating that the quantity supplied does not change with price, which is a key factor in the analysis of the tax's impact.

💡demand curve

A demand curve shows the quantity of a good that consumers are willing to purchase at various prices. The video discusses how the tax levied on buyers causes the demand curve to shift leftwards, indicating a decrease in demand at each price level, which is a direct consequence of the increased cost to the buyer.

💡equilibrium price

The equilibrium price is the price at which the quantity demanded equals the quantity supplied. The video explains that before the tax, there was an original equilibrium price (P). After the tax is implemented, the new equilibrium price (P1) is lower, illustrating how the tax affects the market price.

💡tax burden

The tax burden refers to the economic impact of a tax on individuals or businesses. The video explains that in this scenario, the buyer bears no burden of the tax, while the seller (Red Sox) absorbs the full burden of the tax, which is reflected in the reduced ticket prices.

💡Red Sox

The Red Sox is used as an example of the seller in the video. They are a professional baseball team, and the video uses them to illustrate how a seller might be affected by a tax on ticket sales. The team cannot change the supply of tickets due to the fixed number of seats, so they end up absorbing the tax by lowering ticket prices.

Highlights

Tax is levied on the buyer, not the seller.

Number of tickets is fixed at 38,000.

Supply curve is perfectly inelastic, represented as a vertical line.

Tax affects the demand curve, not the supply curve.

Demand curve shifts leftwards due to the tax, indicating lower demand at higher prices.

Original equilibrium price is denoted as P.

New equilibrium price after tax is P1, which is lower than P.

Difference between P and P1 equals $5, representing the tax burden.

Buyer's tax burden is zero.

Seller (Red Sox) bears the full $5 tax burden.

Supply of tickets remains fixed at 38,000 despite price changes.

Seller absorbs the entire tax through lower ticket prices.

Consumers continue to pay the same price as before the tax (P).

Supply curve's inelasticity prevents sellers from adjusting ticket prices.

Graphical representation of the supply and demand with tax impact.

Tax burden is entirely absorbed by the seller due to fixed supply.

Transcripts

so for this question there are two

important things that we must take into

account the first thing is that the tax

is leved on the buyer and not the seller

and this will have implications the

second thing that is of importance is

the fact that we know that the number of

tickets are fixed at 38,000 as the

question clearly mentions that the

number of seats are fixed and Limited at

38,000 this well this also has implic

ations the implication of this is that

the supply curve is fixed it's a

vertical line it's what's known as

perfectly

inelastic now because the tax is leved

on the buyer and not the seller the

implication of this is that the demand

curve will be affected not the supply

curve so we can represent this with our

usual demand and Supply

schedule where on the Y AIS we have the

price of the tickets and on the x- axis

we have the quantity of tickets

so as I said the supply curve is

perfectly inelastic which means it's a

vertical line that is fixed at 38,000 as

specified by the

question so we can draw that like

this and that's fixed at 38,000 and

that's our supply curve the demand curve

is regular and downward

sloping so at this point of intersection

we have the original equilibrium Price p

before the tax was was

implemented now as I said the tax is

affecting the buyer so the demand curve

will be affected with a higher price

there going to be lower demand so the

demand curve is going to shift leftwards

so this shifts to

D1 and as you can see the equilibrium

price is now lower

P1 now this difference between p and P1

is equal to $5

now with regards to who takes the burden

of the tax on the burden of the tax for

the buyer is exactly zero doar and the

burden of the tax for the seller which

is the Red Sox in this particular

instance is the full

$5 the reason for this is is that the

Red Sox are unable to alter the supply

of tickets as it's clearly mentioned

that the supply is fixed at 38,000 so

even if the price changes Supply stays

fixed the therefore they will end up

absorbing the entire tax via lower

ticket prices as we can see in my

diagram there's a lower equilibrium

price from P to P1 and this is how yeah

the lower prices this is how the

supplier or the seller sorry in this

case is absorbing the entire tax via

these lower ticket prices the consumers

are paying the same price as before

they're still paying P after the tax is

leved so their burden is z do

what