Taxes and Subsides: Flashcards
What is a subside, and what is it used for?
A subside is like a reverse tax that the government imposes typically on in-elastic goods.
T/F who pays the tax does depend on who writes the check?
False, it doesn’t depend on who writes the check. it is adjourned by congress, but instead governed by the laws of supply and demand.
What is the effect of a tax on the buyer and seller?
The per unit cost increase and the sellers make less.
-> the supply curve shifts up on the graph and the demand curve stays the same.
A tax imposed on the demanded or buyer only effects the supply and demand graph in what way?
- It pushes the demand curve down.
- THERE IS THE SAME EFFECT: BUYERS PAY MORE AND SELLERS RECIEVE LESS IN THE EXACT SAME AMOUNTS.
( if you are only willing to pay a dollar for an apple and there is a new tax requiring you to pay .25 cents per apple, the most you are willing to pay is now .75 cents, therefore the demand curve drops by .25 cents.
The more elastic the good (demand prospective) the (greater/lesser) tax you pay?
lesser the tax you pay
the buyers pay more or less when the supply curve is more elastic than than the demand curve?
The buyers pay more for the tax.
what is a commodity tax?
Taxes on goods, such as those on fuel, cigarettes, and liquor.
what area on the graph represents the consumer surplus?
looking at the graph, it is a triangle with one point being the point of equilibrium between supply/demand. then it is the half of the triangle that is above the supply curve and below the demand curve. ABOVE THE PAID PRICE PAID LINE
what area on the graph represents the consumer surplus?
BELOW THE PRICE RECIEVED and out to the quantity demanded, above the supply curve below the demand curve.
What is dead weight loss in terms of this unit?
dead weight loss is the value of trades not taken because of tax.
The more elastic the demand curve the blank dead weight loss are.
larger
What is the difference between the tax wedge and the subsidy wedge?
tax wedge is inserted on the left, while the subsidy wedge is inserted on the right.
Where is the dead weight loss on a subsidy graph?
it is the triangle created by the equilibrium point and where the subsidy wedge touches the supply and demand lines.
T/F in an inelastic curve who gets the benefit of the subsidy?
The buyer
What is the result of commodity taxes?
Tax revenues which are lower than the lost producer and consumer surplus. The rest is dead weight loss.
