4.2: Indirect (excise taxes) HL topic

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Flashcards on 4.2: Indirect (excise taxes) HL topic, created by Jasmine Wells on 12/01/2016.
Jasmine Wells
Flashcards by Jasmine Wells, updated more than 1 year ago
Jasmine Wells
Created by Jasmine Wells about 8 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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