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Description
Flashcards by Jasmine Wells, updated more than 1 year ago
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Created by Jasmine Wells
almost 9 years ago
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| Question | Answer |
| What is the formula for consumer expenditure? | CE=price paid per unit x number purchased |
| What is the formula for producer expenditure? | PE= Price received per unit x number *Price received per unit is also same as revenue-tax |
| What is the formula for government revenue? | GR= tax per unit x number sold or Difference between consumer expenditure and producer revenue after tax. |
| What is welfare loss? | Welfare or dead weight loss represents welfare benefits that are lost to society due to resources that are not allocated efficiently. |
| Why does welfare loss occur? | The imposition of an indirect tax results in reduced consumer and producer surplus, part of which is transformed into government revenue, and part of which is transformed into welfare lose. - Welfare loss results in underproduction of good relative to what is socially desirably. (i.e. allocative efficiency is achieved) |
| What is the formula for consumer surplus? | CS= [(P intercept of D curve - Price of consumers) x Qty Produced]/2 |
| How to calculate producer surplus? | PS= [(Price of producer - P intercept of S1 curve) x Q sold] / 2 |
| How to calculate welfare loss? | [(Pc-Pp)(Q*-Qt)]/2 |
| What is tax incidence? | The burden of the tax |
| How is tax incidence distributed? | It depends on the price elasticity of demand and price elasticity of supply for good being taxed. - When demand in inelastic, most of the tax incidence is on consumers - When demand is elastic, most of the tax incidence is on producers. |
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