An excess of tax revenue (spending) over government spending (tax revenue)
The maximum amount that a buyer will pay for a good
Willingness to Pay
The property of distributing economic prosperity uniformly among the members of society
Fall in total surplus that results from market distortion, such as tax
The uncompensated impact of one persons actions on the well-being of a bystander
A tax to induce private decision makers to take account of the social costs that arise from a negative externality
Goods that are both excludable and rival in consumption
Goods that are rival in consumption but are not excludable
The proposition that if private parties can bargain without cost over the allocation of resources, they can solve problems of externalities on their own.
The costs that parties incure in the process of agreeing to and following through on a bargain
The amount a buyer is willing to pay for a good minus the amount the buyer actually pays for it
The value of everything a seller must give up to produce a good
A tax for which high-income taxpayers pay a larger fraction of their income than do low-income taxpayers
The amount a seller is paid for a good minus the sellers cost of providing it
The property of a good whereby a person can be prevented from using it
The property of a good whereby one persons use diminishes other peoples use
Rivalry in consumption
Total taxes paid divided by total income
Average tax rate
Goods that are neithe excludable nor rival in consumption
The extra taxes paid on an additional dollar of income.
Marginal tax rate
A tax that is the same amount for every person.
A tax for which high-income taxpayers pay a smaller fraction of their income than do low-income taxpayers.
The study of how the allocation of resources affects economic well-being.
Price elasticity of demand is defined as the ______ change in quantity demanded divided by the ______ change in price.
Demand is said to be _______ when the quantity demanded is not very responsive to changes in price.
When demand is inelastic,
Consumers are not very responsive to change in price
Price elasticity of demand is said to be greater
the longer the period of time consumers have to adjust to price changes
The long-run demand curve for gasoline is likely to be
more elastic than the short-run demand curve for gasoline
Demand curves for goods tend to become more inelastic
when people have less time to adapt to a given price change
A straight-line demand curve would
have a higher elasticity of demand near its top than near its bottom
If demand was relatively inelastic in the short run, but elastic in the long run, a price increase would _____ total revenue in the short run and _____ total revenue in the long run
* If the cross-price elasticity of demand between two goods is negative, we know that
they are compliments
For a given increase in price, the greater the elasticity of supply, the greater the resulting
increase in quantity supplied
If the demand for gasoline is highly inelastic and the supply is highly elastic, and then a tax is imposed on gasoline, it will be paid
largely by the buyers of gasoline
At the market equiibrium price and quantity, the total welfare gains from trade are measured by
the sum of consumer surplus and producer surplus
An increase in supply will lead to a _____ price and an _____ in consumer surplus. A decrease in supply will lead to a _____ price and a ______ in consumer surplus
lower, increase; higher, decrease
After imposition of a tax,
consumers pay a higher price, consumers lose consumer surplus, producers receive a lower price after taxes, producers lose producer surplus
With a Subsidy,
the subsidy leads to the production of more than the efficient level of output
The longer a price ceiling is left below the equilibrium price in a market, the _____ is the reduction in the quantity exchanged and the ______ is the resulting deadweight loss.
The presense of negative externalities leads to a misallocation of societal resources because
some costs are associated with production that the producer fails to take into consideration
A tax equal to the external cost on firms that emit pollutants would
provide firms with the incentive to decrease the level of activity creating the pollution.
In the case of a good whose production generates negative externalities,
those not directly involved in the market transactions are harmed
If firms were required to pay the full social costs of the production of goods, including both private and external costs, other things being equal, there would probably be a decrease in production
decrease in production
Assume that production of a good imposes external costs on others. The market equilibrium price will be ______ and the equilibrium quantity ______ for efficient resource allocation.
too low; too high
Assume that production of a good generates external benefits of consumption. The market equilibrium price of the good will be ______ and the equilibrium quantity _______ for efficient resource allocation.
too low; too low
In the case of externalities, appropriate government corrective policy would be
subsidies in the case of external benefits and taxes in the case of external costs
Taxes on the emissions of polluting firms are primarily to intend to
encourage firms to pollute less
An ideal pollution tax
forces a firm to internalize the externality
If compliance standards are too stringent,
the marginal social cost of pollution reduction may outweigh the marginal social benefit of pollution reduction
An advantage that emission taxes and tradable emissions permits have over compliance standards is that the former
make it in the interests of firms to reduce pollution in the most efficient manner possible
According to the Coase theorem, one way to deal with an externality problem when transaction costs are low is
for the government to make certain that property rights are well-defined.
The Coase Theorem suggests that private solutions to externailty problems
Can lead to an optimal allocation of resources if private parties can bargain at relatively low cost
In the case of a private solution to the externality problem, the distribution of rights
determines who bears the cost of the solution but does not affect the efficient result.
The market system fails to provide the efficient output of public goods because
private firms cannot restrict the benefits from those goods to consumers who are willing to pay for them
Public goods, like national defense, are usually funded through government because
it is prohibitively difficult to withhold national defense from someone unwilling to pay for it
A public good is both ________ in consumption and _______
Who must legally pay social security and medicare taxes?
Expenditures on _________ comprise the largest component of state and local government budgets.
________ taxes are designed to take a larger percentage of high incomes as compared to lower incomes
An example of a proportional tax would be
a flat rate income tax
The largest single source of revenue for the federal government is the
personal income tax
The U.S. Federal income tax is an example of a
The ability-to-pay principle states:
Those with the greatest ability to pay taxes should pay more