Tax Incidence and Market Effects Flashcards

Vocabulary flashcards covering tax incidence, elasticity, shifts in supply and demand due to taxation, and deadweight loss.

Tax incidence

How the burden of a tax is divided between buyers and sellers.

Less elastic side

The side of the market that bears more of the tax because it is less responsive to price changes and has fewer ways to avoid the tax.

Legal tax designation

Whether the government legally taxes buyers or sellers, which does not affect the final tax burden as it depends on elasticity.

Tax on sellers

A tax levied on sellers that causes supply to shift left/up because production becomes more expensive.

Tax on buyers

A tax levied on buyers that causes demand to shift left/down because buyers are willing to pay less to sellers.

Quantity traded after a tax

The amount of a good or service exchanged in the market, which usually decreases after a tax is imposed.

Deadweight loss from a tax

The lost gains from trades that no longer happen because the tax reduces quantity.