Tax on a good causes the size of market to shrink

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tax on a good causes the size of market to shrink because they cause buyers toconsume less and sellers to produce lesslosses to buyers and sellers from a tax exceed the revenue raised by the governmentdeadweight loss – the fall in total surplus that results from a market distortion (tax)oCS + PS + Tax revenue = DWLothe greater the elasticities of supply and demand, the greater the DWL of ataxtaxes cause DWL because they prevent buyers and sellers from realizing some of thegains of tradeoas a tax gets larger, the DWL get larger because incentives are distorted moremarginal tax rate – the tax on the last dollar of earningsLaffer curveoBecause a tax reduces the size of the market does not mean tax revenue willcontinually increaseoIt first rises with the size of a tax, but if the tax gets large enough, tax revenuestarts to fallSupply-side economics – cut in tax rates intended to encourage people to increasethe quantity of labor they suppliedChapter 9: International TradeFree trade = unrestrictedEffects of free trade are determined by comparing the domestic price without tradeto the world pricePd > Pw – does not have comparative advantage, country imports the goodPd < Pw – has the comparative advantage, country exports the goodHigh domestic price indicates that the country does not have a comparativeadvantage and will import the goodWhen country exports, producers are better off and consumers are worse off7
When country imports, consumers are better off and producers are worse offGains from trade always exceed lossesWorld price – the price of a good in the world marketTariff – tax on goods produced abroad and sold domesticallyTariff reduces the quantity of imports and gains from trade, and moves the domesticmarket closer to its equilibrium without tradeBenefits of International TradeoIncreased variety of goodsoLower costs through economies of saleoIncreased competitionoEnhanced flow of ideasArguments for restricting TradeoProtecting jobsoDefending national securityoHelping infant industriesoPreventing unfair competitionoResponding to foreign trade restrictions8
TEST 3Chapter 13: Firm Behavior and the Organization of IndustryEconomists assume the goal of a firm is to maximize profitTotal revenue – the amount a firm receives from the sale of its outputoTR= quantity of output X price at which output is soldMarginal revenue = change in TR/ change in QTotal cost – the market value of the inputs a firm uses in productionoTC= explicit costs + implicit costsoExplicit costs require a firm to pay out moneyoImplicit costs (opportunity costs) do not require cash outlayProfit = total revenue – total costEconomists include implicit and explicit costs when measuring a firm’s total costsoEconomic profit = TR – TC (EC and IC)Accountants only measure explicit costs because they focus on moneyo

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Term
Spring
Professor
wheaton

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