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Economic Rent

N

Nadeem_Ladha

Member
In chapter 3, the course notes talk about economic rent. One of the questions asks, what happens to economic rent when an indirect tax is introduced in the situation where there is a perfectly inelastic supply?

Looking at the answers (3.8), I can't seem to quite figure this out. Is economic rent reduced by the value of the tax as the supplier is effectively recieving less money, or does the tax get absorbed into the costs, and therefore economic rent is still the full value of the price before tax? Or am I completely missing the point? I fear the latter!!!

Please help - very confused :confused:
 
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