Econ ch. 8 – Flashcards
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when a tax is levied on a good, the buyers and sellers of the good share the same burden
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regardless of how the tax is levied
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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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the governments benefit from a tax can be measured by
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tax revenue
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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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to measure the gains and losses from a tax on a good economists use the tools of
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welfare economics
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a tax levied on the sellers of a good shifts
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the supply curve upward or to the left
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suppose a tax is imposed on the sellers of fast food french fries. the burden of the tax will
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be shared by buyers and sellers of the fries but not necessarily equally
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the price elasticities of supply and demand effect
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both the size of dead weight loss from a tax and the tax incidence
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sellers of a product will bear the larger parts of the tax burden and buyers will bear the smaller part of the tax burden when the
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demand for the product is more elastic than the supply of the product
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the deadweight loss from a tax of $8 per unit will be smallest in a market with
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inelastic demand and inelastic supply
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if the size of the tax increases, tax revenue
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may increase decrease or remain the same
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assume that for good X the supply curve for a good is a typical upward sloping straight line and the demand curve is a typical downward sloping straight line. If the good is taxed, and the tax is tripled, the
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all of the above are correct
-deadweight loss of the tax increases by a factor of 9
-height of the triangle that represents the deadweight loss triples
-base of the triangle that represents the deadweight loss trip
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the higher the country tax rates the more likely the country will be
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on the negatively sloped part of the Laffer curve
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when a country is on the downward sloping side of the Laffer curve a cut in the tax rate will
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increase tax revenue and decrease the dead weight loss
