Exam 4 Flashcards
Unit 8, 9, 10 (51 cards)
Tax
compulsory charge paid to a government without immediate, direct quid pro quo
Tax base
the economic activity being taxed
Tax rate
the amount of the tax
Tax revenue
the money that is raised by the government from the tax
(TB * TR)
Ad valorem tax
a tax based on value
EX: sales tax, income tax
Excise tax
a tax based on quantity
EX: gas tax, alcohol tax
Statutory incidence
who is required by law to pay a tax
Actual incidence
who has the economic burden of a tax
Regressive tax
as income increases, the average tax rate decreases
Average tax rate
taxes paid divided by income
Progressive tax
as income increases, tax rate stays equal
Detrimental costs of taxes
-buyers pay more money
-sellers receive less money
-less units are bought and sold
Subsidy
a payment by a government to reduce the cost of production or acquisition
Excise subsidy
per-unit subsidy
Ad valorem subsidy
subsidy according to value
Government expenditures
money paid by the government for the subsidies
External costs
costs accrued by non-consenting third parties
Negative externality in production
Chili pepper house
Negative externality in consumption
EX: Smoking
5 Solutions to overproduction from a negative externality
-manners
-command and control
-private property
-pigouvian tax
-let it be
Pigouvian tax
a corrective tax where the goal is for Qt to be equal to Qe
Positive externality
when a good generates benefits for third parties
Positive externality in consumption
Other people getting the flu shot
Positive externality in production
Factory producing laundry detergent
