Studied by 4 people
Commodity tax
Tax on goods
Excise tax
A tax that is paid directly by suppliers to the government
Sales tax
A tax that is paid directly by consumers to the government.
Economic incidence
The division of a tax burden according to who actually pays the tax.
Legal incidence
The division of a tax burden according to who is required under the law to pay the tax.
What is the main consequence of a tax?
Less quantity exchanged
Label a supply and demand graph with a tax wedge
Subsidy
A "negative tax", where the government gives money to consumers or producers.
What is the main consequence of a subsidy?
Creates inefficient increase in trades.
Label a supply and demand curve with a subsidy wedge
Protectionism
The economic policy of restraining trade through tariffs, quotas o other regulations that burden foreign producers but not domestic producers.
Tariff
A tax on imports
Quota
Restriction on the quantity of goods that can be imported.
Label a supply and demand graph with the impact of a tariff
What is the main difference between wage, rent and income, and profit?
Contractual agreements reduce uncertainty.
How do opportunity costs influence an entrepreneur’s decisions?
Monetary expenses do not capture the total costs of production.
The forgone wage of an entrepreneur might not appear on a ledger, but it will remain in mind and influence choices.
What causes profits to not be reduced to zero by competition?
Uncertainty
What do entrepreneurs do?
They try to reorganize activity to gain profit. They also take the responsibility if it is loss. They are the residual claimant.
Three forms of entrepreneurial driving force
Arbitrage, innovation, imitation
Arbitrage
To buy goods at a low price and sell them at a higher price.
Innovation
Entrepreneurs are always on the lookout for better ways to satisfy consumer demand.
They key to an efficient market process is
Open entry and exit, because comparative advantages change over time.
Speculators help the market by
Coordinating market exchanges through time, they even out the flow of commodities into consumption and diminish price fluctuations over time.
Cost plus markup theory
Business firms calculate their unit costs and add on a percentage markup.
Marginal revenue
The additional revenue expected from an action under consideration.
To maximize net revenue, you need to
Set a price that will enable you to sell all those units, but only those units, for which marginal revenue is expected to be greater than marginal cost.
How are you able to lower the price only to a select group of people?
Price discrimination
Three conditions for successful price discrimination
distinguish buyers with different elasticities of demand
prevent low-price buyers from reselling to high-price buyers
control resentment.
How do price searchers find what they’re looking for?
estimating the marginal cost and marginal revenue
determining the level of output that will enable them to sell all those units of output, and only those units for which marginal revenue is greater than marginal cost
setting their price so that they can just manage to sell the output produced
Note 
Flashcard (26)