Micro4G

Micro4G - #3 - Determine the effects of a tax in a market....

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ECO 2023 Principles of Microeconomics Chapter 4 Supply and Demand: Applications and Extensions Key Terms: Price ceiling Shortage Price floor Surplus Tax incidence Deadweight loss Excess burden of taxation Laffer curve Subsidy 4 Goals: #1 - Understand the relationship between resource and product markets. The resource market is intimately related to the product market; a change in one of the markets will cause a change in the other. Specifically, an increase in the demand for the product will increase the demand for the resource used to make the product while a decrease in demand for the product will decrease the demand for the resource used to make the product. #2 - Analyze the impact of government policy in markets. A price ceiling sets price below equilibrium and will create a shortage while a price floor sets price above equilibrium and will create a surplus.
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Unformatted text preview: #3 - Determine the effects of a tax in a market. Tax incidence is the sharing of the burden between consumers and producers and that the burden is not always shared equally. When demand is inelastic, the consumer pays most of the tax while when supply is inelastic, the producer pays most of the tax. The tax eliminates some gains from trade (i.e. some producer and consumer surplus) which is called either the deadweight loss or the excess burden of the tax. #4 - Find out the relationship between tax rates and revenues The Laffer curve represents the relationship between tax rates and tax revenues. Specifically, the Laffer curve indicates that an increase in tax rates sometimes lowers and other times raises tax revenues....
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This note was uploaded on 04/13/2008 for the course ECO 2023 taught by Professor Mccaleb during the Spring '08 term at FSU.

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