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28 Cards in this Set
- Front
- Back
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Method by which a government gains revenue to spend on things like public service and welfare |
Taxation |
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Objectives of taxes |
Raising revenue Reducing inequalities Regulation on consumption and production Encourage domestic industries Development of backward regions Stimulate investment Promote economic growth |
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Economic policies use tools that affect consumer's budget constraint |
Ad valorem tax Specific tax Subsidy opposite to a tax |
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Paid on each unit bought |
Specific tax |
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Paid as a proportion of the price |
Ad valorem tax |
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May have lump sum taxes or subsidies |
Subsidy opposite to a tax |
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Tax per unit sold |
Specific tax |
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Based on the value |
Ad valorem tax |
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Consumers pay blank |
Pd per unit |
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Pd consists of |
Amount producers received and tax |
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Respond to what they receive |
Producers |
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Purchase according to what it costs them |
Consumers |
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Supply curve of producers is |
Qs(PS) |
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Demand curve of consumers |
Qd(Pd) |
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Shifts downward by the size of tax |
Demand curve |
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Shifts upward by the size of tax |
Supply curve |
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Price paid by buyers |
Rises |
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Price received by sellers |
Falls |
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Tax highers the quantity sold |
False |
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Determined by elasticities of Qs and Qd |
Tax burden |
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Amount of tax times quantity |
Tax revenue |
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Taxes effectively reduce consumption |
True |
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Reduced consumption results to |
Reduced standard of living Increased in unemployment |
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Burden of tax depends on |
Relative elasticity |
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The burden is always shared equally since elasticities are always equal |
False |
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If demand is more inelastic consumer will pay blank share |
Higher |
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If supply is more inelastic than demand, suppliers will pay blank share |
Higher |
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Means finding the tax caused-price changes to consumers and producers |
Tax incidence |
