Exam 2 All Terms Flashcards
Define: Commodity tax
a tax on goods
Fill in the blanks: Tax = the price _______________ - the price _______________.
paid by buyers, received by sellers
Fill in the blank: Who ultimately pays a tax depends on the _______________.
relative elasticities of supply and demand
Fill in the blanks: Elasticity = _______________ from tax. The more elastic curve (supply or demand) has to pay _______________ of the tax.
escape, less
Fill in the blanks: A commodity tax _______________ revenue and _______________ the gains from trade (creates a _______________).
raises, reduces, deadweight loss.
Define: Deadweight loss
the reduction in total surplus caused by a market distortion or inefficiency
Fill in the blank: The deadweight loss from taxation is _______________ the more elastic the demand curve.
larger
Fill in the blank: The deadweight loss from taxation is _______________ the less elastic the supply curve.
smaller
Define: Subsidy
a reverse tax; the government gives money to consumers or producers
Fill in the blank: Whoever receives the burden of the tax receives the _______________ of the subsidy.
benefit
Define: Price ceiling
a maximum price allowed by law
Fill in the blanks: Price ceilings create
1. _______________
2. _______________
3. _______________
4. _______________
5. _______________
- shortages
- reductions in product quality
- wasteful lines and other search costs
- a loss of gains from trade (deadweight loss)
- a misallocation of resources
Fill in the blank: When prices are controlled, resources do not flow to their _______________
-valued uses.
highest
Define: Price floor
a minimum price allowed by law
Fill in the blanks: Price floors create
1. _______________
2. _______________
3. _______________
4. _______________
5. _______________
- surpluses
- a loss of gains from trade (deadweight loss)
- wasteful increases in quality
- a misallocation of resources
Define: Private cost
a cost paid by the consumer or producer
Define: External cost
a cost paid by people other than the consumer or producer trading in the market
Define: Social cost
the cost to everyone: the private cost plus the external cost
Define: Externalities
external costs or external benefits AKA cost or benefits that fall on bystanders.
Define: Social surplus
consumer surplus plus producer surplus plus everyone else’s surplus
Define: Efficient equilibrium
the price and quantity that maximize social surplus
Define: Efficient quantity
the quantity that maximizes social surplus
Define: Pigouvian tax
a tax on a good with external costs
Define: External benefit
a benefit received by the people other than the consumers or producers trading in the market
Define: Pigouvian subsidy
a subsidy on a good with external benefits
Fill in the blanks: private goods are _______________ and _______________.
excludable, rival
Fill in the blanks: public goods are _______________ and _______________.
nonexcludable, nonrival
Fill in the blanks: club goods are _______________ and _______________.
excludable, nonrival
Fill in the blanks: common resources are _______________ and _______________.
nonexcludable, rival
Define: tragedy of the commons
the tendency of unowned/unexcludable good to be overused and undermaintained
Fill in the blank: A dominant strategy is a strategy that has a _______________ payoff than any other strategy no matter what the other player does.
higher
Define: Prisoner’s dilemma
describes situations where the pursuit of self-interest leads to a group or social outcome that is in the interest of no one.
