Mod 2.8A: Taxes, Subsidies, and Market

Taxation:

• creates the same benefits for everyone.

• creates a loss of consumer and producer surplus.

• lowers the cost of goods.

• prevents deadweight loss for consumers and producers.

• increases the number of mutually beneficial transactions.

Tax incidence is:

• the proportion of the tax paid by consumers or producers

• the amount of a tax

• how often a tax is collected

• the administrative cost of collecting a tax

• the government revenue generated by a tax

Tax incidence is based on (SELECT 2):

• the wealth of a consumer

• elasticity of supply and elasticity of demand

• the amount of a tax

• the proportion of the tax that lies between the supply or demand curve and the equilibrium price

• fair and efficient practices

Which of the following is the impact of a subsidy? (SELECT 2)

• It does not create deadweight loss.

• It decreases the price of a good.

• It increases the amount of taxation.

• It decreases demand.

• It increases the quantity sold of a good.

Deadweight loss is (SELECT 2):

• a triangular area

• the cost to the government of a subsidy

• the surplus gained due to a tax

• the surplus lost due to a tax

• the loss in revenue to producers when a tax is levied

How would you find the government cost of a per unit subsidy?

• (Quantity after subsidy – Quantity before subsidy) x (Price sold after subsidy)

• (Price after subsidy – Price before subsidy) x (Quantity sold after subsidy)

• (Price before subsidy – Price after subsidy) x (Quantity sold after subsidy)

• (Price after subsidy) x (Quantity sold after subsidy)

• (Price after subsidy) – (Quantity sold after subsidy)