Chapter 5 - taxes Flashcards
The __________ of a tax is a measure of who really pays it
incidence
When the price of elasticity of demand is a low and the price elasticity of supply is high, the burden of an excise tax falls mainly on _________
consumers
When the price elasticity of demand is high and the price elasticity of supply is low, the burden of an excise tax falls mainly on __________
producers
On one side, the tax increase means that the government raises more revenue for each unit sold, which increases tax revenue. On the other side, it ________ the quantity of sales, which __________ tax revenue.
reduces
decreases
If the price elasticities of both supply and demand are _____, the tax increase won’t reduce the quantity of the good sold very much, so tax revenue will definitely ______.
low
rise
If the price elasticities are _____ enough, the tax reduces the quantity sold so much that tax revenue falls.
high
If the price elasticities are high, the result is less certain and dependent on how high or low the ________ tax rate was
initial
total inefficiency of tax =
deadweight loss + administrative costs
what are administrative costs
administrative costs of a tax are the resources used for its collection, for the method of payment, and for any attempts to evade the tax. Taxes cost society time and effort that could have been used elsewhere.
The greater the price elasticity of demand or supply, the ________ the tax-induced fall in the quantity transacted
greater
The lower the price elasticity of demand or supply, the smaller the tax-induced fall in the quantity transacted and the ________ the deadweight loss.
smaller
What are the 2 principles of tax fairness
The benefit principle
The ability-to-pay principle
describe the benefit principle
those who benefit from public spending should bear the burden of the tax that pays for that spending.
For example, the federal Gas Tax Fund uses a portion of federal taxes collected on the sale of gasoline for maintaining the highway system.
Describe the ability-to-pay principle
those with greater ability to pay a tax should pay more.
what are the objectives of taxation
generate tax revenue
deal with externalities (taxes on smokes)
What are the two types of taxes
ad - valorem % of a value
Per-unit $/unit
The party that is more ________ will have the higher tax burden
inelastic
how to calculate the incidence
tax burden divided by total tax amount
