Exam 2 Cheat Sheet.docx - Exam 2 Cheat Sheet CHAPTER 6 TAXES AND SUBSIDIES � � � � � � � � Elasticity=escape Tax incidence who pays the tax Commodity

Exam 2 Cheat Sheet.docx - Exam 2 Cheat Sheet CHAPTER 6...

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Exam 2 Cheat Sheet CHAPTER 6: TAXES AND SUBSIDIES · Elasticity=escape · Tax incidence: who pays the tax · Commodity taxation raises revenue & creates DWL · Tax= [price paid by buy- ers] – [price paid by sell- ers] · Perfectly elastic demand = seller pays tax. · Perfectly elastic supply = buyer pays tax. · Subsidy = price received by sellers — price paid buyers · D > elastic S, suppliers pay more tax but receive more benefit of subsidy CHAPTER 7: THE PRICE SYSTEM · The price of a good contains information about the value of the good (where resources are needed/not needed) and the cost of producing the good · Central planning: single bureaucracy=responsible for allocating goods -inefficient: too much info & too few incentives · Speculation: attempt to profit from future profit changes · Future markets: markets for future delivery or purchase of a good -future price > spot price = loss to buyer -future price < spot price = gain to buyer · Spot market: current market price (spot price) · Price gouging: prices tell producers WHAT to make -markets w/o price gouging laws will recover quicker CHAPTER 8: PRICE CEILINGS AND FLOORS · Price ceilings: (price max) prevent prices from rising above a certain level….cause shortages
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