The Economic Impact of Taxes
The effects on taxes on economic efficiency
o Whenever a government taxes a good or service, less of that good or service will
be produced and consumed
o True tax burden is shared by producers and consumers and also dead weig
Production Possibilities Model: Shows the goods and services that an economy
is capable of producingits possibilitiesgiven the factors of production and the
technology it has available. The model specifies what it means to use resources
fully and efficie
Why do you buy the goods and services you do? It must be because they
provide you with satisfactionyou feel better off because you have purchased
them. Economists call this satisfaction utility.
When we speak of maximizing utility, then, we are speaking
Each good or service has its own special characteristics that determine the
quantity people are willing and able to consume. One is the price of the good or
service itself. Other independent variables that are important determinants of
demand include con
Economists assume that people make choices that maximize the value of some
To say that individuals maximize is to say that they pick some objective and then
seek to maximize its value.
Economists pay special attention to two groups of maximize
Economics is a social science that examines how people choose among the
alternatives available to them. It is social because it involves people and their
behavior. It is a science because it uses, as much as possible, a scientific
approach in its investi
The short run in this microeconomic context is a planning period over which the
managers of a firm must consider one or more of their factors of production as
fixed in quantity.
When the quantity of a factor of production cannot be changed during a parti
We will show that a monopoly firm is likely to produce less and charge more for
what it produces than firms in a competitive industry. As a result, a monopoly
solution is likely to be inefficient from societys perspective.
Monopoly is at the opposite end
Two models that fall between the extremes of perfect competition and monopoly
are monopolistic competition and oligopoly.
Virtually all firms in a market economy face competition from other firms.
Perfect competition is a model of the market based on the