Econ212+Spring2013+Le_Linh+Notes_for_Week_01

Sometimes taxes subsidies and rationing are combined

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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:...
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