Tax Incidence Flashcard

Front

What is tax incidence?

Back

Distribution of tax burden between buyers and sellers

Front

Who bears the burden of a specific tax?

Back

Consumers and/or producers

Front

What factors determine the incidence of a specific tax?

Back

Elasticity of demand and supply, ability to shift tax burden, and relative market power of buyers and sellers.

Front

If supply is perfectly elastic, the ______________will pay the ENTIRE tax.

Back

consumers

Front

How does the elasticity of demand affect the incidence of a specific tax?

Back

The elasticity of demand affects the incidence of a specific tax by determining how much of the tax burden is passed on to consumers or producers.

Front

What is the difference between progressive, regressive, and proportional taxes?

Back

Progressive taxes are based on the taxpayer's ability to pay, where the tax rate increases as income increases. Regressive taxes take a larger percentage of income from low-income earners compared to high-income earners. Proportional taxes apply the same tax rate to all income levels.

Front

What happens to tax incidence when demand is highly elastic?

Back

The incidence of the tax falls more heavily on the suppliers.

Front

How is total revenue calculated?

Back

Total revenue is calculated as P X Q.

Front

How does the incidence of a specific tax change when the demand is more elastic than supply?

Back

The incidence of the tax falls more heavily on the producers.

Front

What happens to consumer and producer surplus when a tax is introduced into the market?

Back

both decrease