Principles of Economics - Chapter 8: Application: The Costs of Taxation

This set of flashcards covers key concepts, definitions, and economic principles discussed in Chapter 8 of Mankiw's Principles of Economics, focusing on taxation and its impact on markets.

Deadweight Loss

The fall in total surplus that results when a tax distorts the outcome in an otherwise efficient market.

Consumer Surplus

Welfare of buyers, measured as the amount buyers are willing to pay for the good minus the amount they actually pay.

Producer Surplus

Welfare of sellers, measured as the amount sellers receive for the good minus their costs of producing it.

Tax Revenue

The amount of money the government collects from a tax, calculated as the size of the tax multiplied by the quantity sold.

Total Surplus

The overall economic welfare, calculated as the sum of consumer surplus and producer surplus.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to changes in price.

Laffer Curve

A relationship showing that as tax rates rise, tax revenue rises to a point and then falls after reaching a certain tax rate.

Market Outcome

The end result in a market that determines price and quantity, which remains the same regardless of whether a tax is collected from buyers or sellers.

Gains from Trade

The difference between buyers’ value and sellers’ cost resulting from trade.

Wedge

The difference between the price that buyers pay and the price that sellers receive due to a tax.