Econ Midterm Review - Econ Mid-Term Review Excise Tax...

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Econ Mid-Term Review Excise Tax Increase in price paid by consumers Decrease in the price received by producers Consumers and producers share the burden of the tax Loss in CS and PS Consumer burden: difference b/w what they pay before and after the tax Producer’s burden: difference b/w what they get before and after tax Subsidy Tax Shifts supply curve down by amount of the subsidy Increase in supply Given money by the government per unit Receive price paid by consumer as well as subsidy Lower prices for consumers but increase price received by producers Benefits consumer and producer Gain in PS and CS Shifts supply curve downward by the amount of the subsidy at every quantity Speculation Withholding a product in hope that the price will increase in the future raises the current price, and selling in the future lowers price. Consumer Surplus Measure of consumer satisfaction Occurs when the consumer is willing to pay more for a given product than the current market price Difference b/w price a consumer is willing to pay and the actual price paid Demand is perfectly elastic CS = 0 o Price people pay is the same they are willing to pay Demand is perfectly inelastic CS = infinite o Demand is then irrelevant to price change o Whatever the price, demand remains the same Demand is inelastic o Greater potential CS because there are some buyers willing to pay a high price to continue consuming the product Outward shift in demand higher CS o More is being bought at a higher price than before Outward shift in supply higher CS Producer Surplus Benefit that the producer receives for selling the good in the market
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Difference b/w the amount a producer of a good receives and the minimum amount that he would be willing to accept for the good Elasticity Elastic o Change in price leads to sharp change in quantity demanded or supplied o Goods that are not necessities (i.e. luxuries) o Slope of demand curve: small Inelastic o
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