Taxation and Regulation

average tax rate

total taxes / total income

marginal tax rate

rate paid on the last dollar of income

progressive tax system

average and marginal tax rates are higher for higher income levels

proportional tax structure

everyone pays the same proportion
marginal and average tax rates same for everyone

regressive tax system

lower the income, the higher the percentage of tax (same amount)
marginal and average rates fall as income rises

tax incidence

who bears the burden of a tax

deadweight loss

price difference x quantity difference / 2

tax on producers vs tax on consumers

same amount paid by producer and consumer and the same amount to the government

the effects of demand and supply on the tax burden

the side of the market that is less elastic will bear the burden

supply is more elastic than demand

demand is more elastic than supply

direct regulation

attempts by the government to control the amount of activity

price controls

attempts by the government to control the price of an activity

government intervention in markets can cause (4)

deadweight losses
increased costs due to bureaucracy
corruption
black markets

equity vs efficiency

allocating resources fairly vs increases social surplus

consumer sovereignty

consumers know best

paternalism

gov can help guide consumer choice