Cost of Taxation and International Trade

Vocabulary flashcards generated from the lecture notes on taxation and international trade.

Taxation

Government collects money

Tax Incidence

Who actually bears the tax burden

Tax Burden

Who actually loses because of the tax

Elastic

Reacts a LOT to price changes

Inelastic

Reacts a LITTLE to price changes

Tax on Buyers

Buyer officially sends the tax

Tax on Sellers

Seller officially sends the tax

Tax Wedge

Gap between buyer's price and seller's price

Tax Revenue

Money government collects

T

Tax per unit

Q

Quantity sold

Tax Revenue Formula

$\text{Tax Revenue} = T \times Q$ (Tax $\times$ quantity sold)

Deadweight Loss (DWL)

Lost gains from trades that no longer happen

Rectangle

Tax revenue on the graph

Triangle

Deadweight loss on the graph

More Elastic

Bigger DWL

More Inelastic

Smaller DWL

Supply More Elastic

Buyers bear more tax

Demand More Elastic

Sellers bear more tax

Small Tax

Small DWL + small revenue

Medium Tax

Bigger DWL + initially bigger revenue

Large Tax

Huge DWL + eventually small revenue

Laffer Curve

Tax revenue first rises, then falls

International Trade

Exchange of goods and services between countries

Domestic

Inside the country

Domestic Price

Price inside the country

World Price

Price in the international market

Export

Selling goods to another country

Import

Buying goods from another country

Comparative Advantage

Ability to produce something at a lower production cost

Consumer Surplus

Extra benefit received by buyers

Producer Surplus

Extra benefit received by sellers

Total Surplus

Consumer surplus + producer surplus

Free Trade

Trade allowed without trade restrictions

Tariff

Tax on goods produced abroad and sold domestically

Government Revenue

Money collected by the government

Increased Variety of Goods

More products to choose from

Lower Costs Through Economies of Scale

Producing more can lower the cost per product

Increased Competition

More businesses compete with each other making prices low

Enhanced Flow of Ideas

Countries share ideas and knowledge

Jobs Argument

Trade can destroy jobs in industries competing with imports

National-Security Argument

Some industries may be important for national security

Infant-Industry Argument

New industries need temporary protection while growing

Unfair-Competition Argument

Trade may be unfair when countries don't follow the same rules

Protection-as-a-Bargaining-Chip Argument

Trade restrictions can be used as a negotiating threat