Chapter 8: Application: The Costs of Taxation

Flashcards containing vocabulary terms and their definitions related to the costs of taxation, focusing on concepts such as deadweight loss, tax revenue, consumer and producer surplus, and the effects of taxes on market efficiency.

Deadweight Loss

The fall in total surplus that results from a market distortion, such as a tax.

Tax Wedge

The difference between the price buyers pay and the price sellers receive due to taxes.

Consumer Surplus

The benefit consumers receive when they pay less for a product than what they are willing to pay.

Producer Surplus

The benefit producers receive when they sell a product for more than the minimum they would accept.

Elasticity of Demand

A measure of how much the quantity demanded of a good responds to a change in its price.

Elasticity of Supply

A measure of how much the quantity supplied of a good responds to a change in its price.

Tax Revenue

The total amount of money the government receives from taxes.

Total Surplus

The sum of consumer surplus, producer surplus, and tax revenue.

Market Distortion

A situation in which market forces lead to inefficient outcomes, often due to taxes or subsidies.

Laffer Curve

The relationship between the size of tax rates and the total tax revenue collected by governments.

Inelastic Demand

A situation where the quantity demanded does not change significantly with a change in price.

Elastic Demand

A situation where the quantity demanded changes significantly with a change in price.

Inelastic Supply

A situation where the quantity supplied does not change significantly with a change in price.

Elastic Supply

A situation where the quantity supplied changes significantly with a change in price.

Burden of the Tax

The economic impact of a tax on buyers and sellers in a market.

Market Size

The total number of buyers and sellers in a given market.