Principles of Microeconomics - Taxes

These flashcards cover key vocabulary terms related to the concepts of taxes, buyer and seller behavior, and efficiency in the context of microeconomics.

Tax incidence

The division of the burden of a tax between the buyer and the seller.

Buyer pays price

The price that includes the tax that the buyer responds to.

Seller receives price

The price that excludes the tax that the seller responds to.

Deadweight loss

The loss of economic efficiency when the equilibrium outcome is not achievable or not achieved.

Elasticities of demand and supply

Measures of how much the quantity demanded or supplied changes when there is a change in price.

Consumer surplus

The difference between what consumers are willing to pay and what they actually pay.

Producer surplus

The difference between what producers are willing to accept and what they actually receive.

Tax revenue

The income gained by governments through taxation.

Inefficiency due to taxes

A tax creates a wedge between the buyers’ price (marginal benefit) and the sellers’ price (marginal cost) leading to a decrease in equilibrium quantity.

Equilibrium quantity

The quantity of goods that is bought and sold at the equilibrium price, which is less than the efficient quantity due to taxes.