Taxes and Subsidies

These flashcards cover key concepts related to taxes and subsidies, focusing on definitions important for understanding the economic implications of these financial tools.

Commodity Taxes

Taxes on goods, such as those imposed on fuel, cigarettes, and liquor.

Tax Wedge

The difference between the price paid by buyers and the price received by sellers due to a tax.

Elasticity

A measure of how responsive the quantity demanded or supplied is to price changes.

Deadweight Loss

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

Subsidy

A reverse tax in which the government provides financial support to consumers or producers.

Inelastic Demand

Demand that is not very responsive to price changes.

Elastic Demand

Demand that is very responsive to price changes.

Relative Elasticities

Comparative measure of how elastic or inelastic supply and demand are in relation to each other.

Who Pays the Tax

The distribution of tax burden among buyers and sellers, depending on the relative elasticities of demand and supply.

Gains from Trade

The increase in total welfare from voluntary exchange in a competitive market, which can be reduced by taxation.