HL - Taxes And Subsidies Flashcards
What is a specific tax?
It’s x amount per unit
What’s an Ad Valorem tax?
X% of overall price
Equation for total consumer expenditure
p x q
What’s the equation for total consumer expenditure after tax?
p(1) x q(1)
What’s the equation for producer revenue?
p x q
What’s the equation for producer revenue after tax?
p(2) x q(1)
What’s the equation for government revenue after tax?
(p1 - p2) x q(1)
What’s the burden ( the amount they’ve had to change in price) on the consumer?
(p1 - p) x q(1)
What’s the burden ( the amount they’ve had to change in price) on the producer?
(p-p2) x q(1)
What is a subsidy?
An amount of money paid by the government to firms for a variety of reasons
What’s the equation for original consumer expenditure?
p x q
What’s the equation for the new consumer expenditure?
p(1) x q(1)
What’s the equation for original producer revenue?
p x q
What’s the equation for new producer revenue?
p(2) x q(1)
What the equation for government expenditure?
( p2 - p1) x q1
What’s the equation for consumer surplus before?
(P3 - p) x q x 1/2
What’s the equation for consumer surplus after?
(p3- p1) x q1 x 1/2
What’s the equation for producer surplus before?
( p x q) x 1/2
What’s the equation for producer surplus after?
(p2 x q1) - (1/2 x ( q1 - q2) x p2)
It’s a trapeze
What may happen to consumer expenditure after a subsidy?
It may rise or fall depending on the PED of the product
What happens to the burden of the tax if PED = PES
The burden of the taxation will be shared equally between consumers and producers.
What happens to the burden of the tax if PED > PES? (PED is more elastic than PES).
The burden of the taxation will be greater on producers than consumers, because consumers are more sensitive to a price change.
What happens to the burden of the tax if PED < PES? (PED more inelastic than PES).
The burden of the taxation will fall onto consumers rather than producers, because producers are more sensitive/ reactive to a price change.
