taxes and subsidies

e = elastic ie = inelastic

taxes

mandatory payment/charge collected by the govt to cover general services, goods, activites

tax incidence/burden

measure of who ultimately pays tax

can be split between buyers and consumers

direct tax

cannot be shifted to another person or group, paid by the chosen person

ex. income tax

indirect tax

can be passed on or shifted to another

ex. sales tax

tax revenue

collected taxes that finances govt activities and programs

subsidies

direct/indirect payment to people in the form of cash payment from govt

can be used to offset market failure to achieve grater economic efficiency

ex. 4 piece program

know

decide whether the law affects supply or demand curve

direction

decide where the curve shifts

effect

examine how the shift affects e price & qty

e supply, ie demand

tax burden falls on buyers than sellers

ie supply, e demand

tax burden falls on sellers than buyers

demand curve

buyer perspective

supply curve

seller perspective

deadweight loss

cost to society created by market inefficiency, when supply and demand are out of equilibrium

ie supply - deadweight loss

deadweight loss is small

e supply - deadweight loss

deadweight loss is large

e demand - deadweight loss

deadweight loss is large

ie demand - deadweight loss

deadweight loss is small