Government Intervention in Markets: Taxes and Subsidies

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6 Terms

1
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Effect of a Tax Levied on Consumers

Shifts down the demand curve, decreases quantity demanded

2
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Economic Incidence of a Tax

Impact of tax on quantity and price in the market

3
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Effect of a Tax Levied on Producers

Shifts up the supply curve, decreases quantity demanded

4
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Method 2: The Wedge Method

Illustrates a tax driving a wedge between consumer and producer prices

5
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Government Revenue

Dollars received by the government from consumers or producers

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Subsidy

Benefit given by the government to decrease consumer price and increase producer price