Sometimes taxes subsidies and rationing are combined

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ce relative to which we are measuring the other price and income. It will occasionally be convenient to think of one of the goods as being a numeraire good, since there will then be one less price to worry about set p2 = 1 à༎ p2 is the numeraire price 2.6. Taxes, Subsidies and Rationing - Quantity tax à༎ makes the budget line steeper (increase price of a good) - Value tax (aka, ad valorem tax) - Lump- sum tax à༎ budget line shifts inward (income reduced) - Quantity subsidy (opposite to tax) à༎ makes the budget line flatter (decrease price of a good) - Ad valorem subsidy - Lump- sum subsidy à༎ budget line shifts outward - Rationing constraints:...
View Full Document

This note was uploaded on 02/25/2014 for the course ECON 212 taught by Professor Mirobins during the Spring '08 term at Mt. Holyoke.

Ask a homework question - tutors are online