1
Q
Total Surplus
A
Total net gain to consumers and producers from trading in a market
2
Q
When is a market considered efficient?
A
- no way to make some people better off without making others worse off
- market equilibrium price/quantity is most efficient
3
Q
Caveats of Efficient Markets
A
- Not always fair/equitable
- Some fail to deliver efficiency
- Maximizing surplus does not benefit all people in the market — buyers with low willingness/ability to pay and sellers with high cost lose out
4
Q
Regressive Tax
A
High-income taxpayers pay smaller % of income than low-income taxpayers
5
Q
Proportional Tax
A
Tax in which all taxpayers pay the same % of income
6
Q
Progressive Tax
A
- Tax in which high-income taxpayers pay a larger % of income than low-income taxpayers
- Most equitable form of taxation, though some argue it is inefficient (disincentivizing workers to earn more to avoid higher tax rates)
7
Q
Excise Tax
A
- Tax on sales of particular good/service
- Causes an upward shift in the supply curve by amount of the tax, thereby increasing the equilibrium price and decreasing the equilibrium quantity
8
Q
Tax Incidence
A
- Distribution of the tax burden — who pays what % of the burden out of producers/consumers
- Depends on price elasticity of both supply and demand
9
Q
Revenue from Excise Tax
A
Area of rectangle
- Height of tax wedge between supply/demand prices
- Width of quantity sold under the tax
10
Q
Deadweight Loss (from a tax)
A
- Drop in total surplus resulting from: (tax) - (any tax revenues generated)
- Tax leads to a deadweight loss because it creates inefficiency
11
Q
Calculate Deadweight Loss from a Tax
A
Find the area of a triangle bounded by the quantity under taxation that points in the direction of the efficient quantity
12
Q
Lump-Sum Tax
A
- Tax of a fixed amount paid by all taxpayers
- Does not affect price and quantity, therefore does not cause deadweight loss
