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11 Cards in this Set
- Front
- Back
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domestic price without trade is higher than the world price
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the country will be the importer of the good
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A tax on a good
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raises the price that buyers effectively pay and lowers the price that sellers effectively receive.
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To fully understand how taxes affect economic well-being, we must compare the
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decrease in total surplus to the increase in revenue raised by the government.
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When a tax is levied on a good, the buyers and sellers of the good share the burden,
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regardless of how the tax is levied.
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What happens to the total surplus in a market when the government imposes a tax?
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Total surplus decreases.
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It does not matter whether a tax is levied on the buyers or the sellers of a good because
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buyers and sellers will share the burden of the tax.
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One result of a tax, regardless of whether the tax is placed on the buyers or the sellers, is that the
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tax reduces the welfare of both buyers and sellers.
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If T represents the size of the tax on a good and Q represents the quantity of the good that is sold, total tax revenue received by government can be expressed as
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TxQ
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If the size of a tax increases, tax revenue
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may increase, decrease, or remain the same.
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As the tax on a good increases from $1 per unit to $2 per unit to $3 per unit and so on, the
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tax revenue increases at first, but it eventually peaks and then decreases.
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Which of the following statements is true for markets in which the demand curve slopes downward and the supply curve slopes upward?
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As the size of the tax increases, tax revenue rises initially, but it eventually begins to fall; deadweight loss continually rises
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