The ability to pay principle proposition that people

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The Ability-to-Pay Principle: proposition that people should pay taxes according to how easily they can bear the burden of the tax Conclusion: The Benefits Principle and the Ability-to-Pay Principle. What are production quotas and subsidies? A production quota is an upper limit to the quantity of a good that may be produced in a specified period The effect of the production quota depends on whether it is set below or above equilibrium quantity If the government introduced a production quota above the equilibrium quantity, nothing would change because sugarbeets growers would already be producing less than the quota A production quota set below the equilibrium quantity has big effects: a decrease in supply, a rise in price, a decrease in marginal cost, inefficient underproduction, an incentive to cheat and overproduce these effects A subsidy is a payment made by the government to a producer Effects of a subsidy are an increase in supply, a fall in price and increase in quantity produced, an increase in marginal cost, payments by government to farmers, and inefficient overproduction Farm subsidies are a major obstacle to achieving an deficient use of resources in the global markets for farm products and are a source of tension between the U.S., Europe, and developing nations Conclusion: Production quotas and subsidies have the following effects. What are markets for illegal goods? A free market for a drug: The lower the price of the drug, the smaller is the quantity supplied A market for an illegal drug: When a good is illegal, the cost of trading in the good increases. The larger the penalties and the better the policing, the higher are the costs. Penalties on drug dealers decreases the supply Penalties on buyers decreases the demand With high enough penalties and effective law enforcement, it is possible to decrease demand and/or supply to the point at which the quantity bought is zero, but this outcome is unusual Legalizing and taxing drugs Illegal trading to evade the tax Conclusion: Some people intensely dislike the idea of the government profiting from trade in harmful substances.
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