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first fundamental theorem of welfare economics:

In ________ ______, they allocate consumption of a good to _____ _____ with ______ __________ __ ___ and allocate sales of a good to _________ _____ that have the _____ ____ to ensure that all transactions are _________ _________.

In competitive markets, they allocate consumption of a good to potential buyers with the highest willingness to buy and allocate sales to potential sellers that have the lowest production costs to ensure that all transactions are mutually beneficial.

The equilibrium of a competitive market is pareto efficient.

competitive markets are able to generate this pareto efficiency because:

1

2

1 property rights

2 economic signals in the form of prices

pareto efficiency:

an economic state where ________________________________

an economic state where no one can be made better off without someone else being made worse off

excise tax: a type of tax charged on ______________

a type of tax charged on each unit of a g/s sold

total inefficiency after tax = ___ + ___________ costs

DWL + administrative

The burden of excise tax depends on ________. The tax burden is borne by the group with the most _________ curve. 

If the government’s goal is to generate as _____ as possible DWL, then excise taxes should be levied on goods with _______ supply/demand/both. However, if the goal is to ______ _____ _________, then the tax should be levied on goods with ______ demand/ supply/ both.

The burden of excise tax depends on elasticities. The tax burden is borne by the group with the most inelastic curve. 

If the government’s goal is to generate as little as possible DWL, then excise taxes should be levied on goods with inelastic supply/demand/both. However, if the goal is to limit some activity, then the tax should be levied on goods with elastic demand/ supply/ both.

when PED > PES, _______ bear a greater burden as …

when PED > PES, producers bear a greater burden as consumers don’t need the good as much but producers have a relatively inelastic supply

when PES > PED, ________ bear a greater tax burden as …

when PES > PED, consumers bear a greater tax burden as they need the good a lot and will be willing to pay most of the tax on top of the good’s price

if the government’s goal is to increase tax revenue, they should increase taxes when ________

increasing tax when there is high PED and PES will ________ tax revenue as it would affect eqm Q to a _____ extent; therefore, such is only to ______ _____ ______

increasing tax when there is high PED and PES will decrease tax revenue as it would affect eqm Q to a great extent; therefore, such is only to limit certain activities

increasing tax when there is low PED and PES will ________ tax revenue as it would affect eqm Q to a _____ extent

increasing tax when there is low PED and PES will increase tax revenue as it would affect eqm Q to a small extent