which of the following is true of taxes and subsidies? course hero

What drives a wedge between what buyers pay and what sellers receive?

What will organized interest groups benefit from the restrictions?

What is the strength of a government?

What is the difference between the national debt and the federal budget deficit?

What would happen if the power of special interests was diminished?

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Solved The law of comparative advantage indicates that if a | Chegg.com

Business; Economics; Economics questions and answers; The law of comparative advantage indicates that if a group of individuals wants to maximize their joint output, then each good should be supplied by A. the low opportunity cost producer B. the person with the lowest wage rate C. the person that can accomplish the task most rapidly D. the person with the most advanced technical knowledge

What drives a wedge between what buyers pay and what sellers receive?

Taxes drive a wedge between what buyers pay and what sellers receive

What will organized interest groups benefit from the restrictions?

organized interest groups benefiting from the restrictions will make large contributions to political campaigns while most others will not feel strongly about the restriction

What is the strength of a government?

strength the incentive of governments to operate efficiently and cater to the views of the consumers

What is the difference between the national debt and the federal budget deficit?

the national debt represents the cumulative effect of all previous budget deficits and surpluses, while the federal budget deficit reflects only the additions to the debt in the current year

What would happen if the power of special interests was diminished?

the power of special interests would be diminished and federal spending reduced

How does a subsidy work?

A subsidy is often given to remove some type of burden, and it is often considered to be in the overall interest of the public. In economic terms, a subsidy drives a wedge, decreasing the price consumers pay and increasing the price producers receive, with the government incurring an expense.

Why are taxes and subsidies more complicated than price or quantity control?

Taxes and subsidies are more complicated than a price or quantity control as they involve a third economic player: the government. As we saw, who the tax or subsidy is levied on is irrelevant when looking at how the market ends up. Note that the last three sections have painted a fairly grim picture about policy instruments. This is because our model currently does not include the external costs economic players impose to the macro-environment (pollution, disease, etc.) or attribute any meaning to equity. These concepts will be explored in more detail in later topics.

What if the legal incidence of the tax is levied on the consumers?

If consumers are only willing to pay $4/gallon for 4 million gallons of oil but know they will face a $3/gallon tax at the till, they will only purchase 4 million gallons if the ticket price is $1. This creates a new equilibrium where consumers pay a $2 ticket price, knowing they will have to pay a $3 tax for a total of $5. The producers will receive the $2 paid before taxes.

Why is subsidy important?

In economic terms, a subsidy drives a wedge, decreasing the price consumers pay and increasing the price producers receive, with the government incurring an expense.

What happens if the government levies a $3 gas tax on producers?

If the government levies a $3 gas tax on producers (a legal tax incidence on producers), the supply curve will shift up by $3. As shown in Figure 4.8a below, a new equilibrium is created at P=$5 and Q=2 million barrels. Note that producers do not receive $5, they now only receive $2, as $3 has to be sent to the government. From the consumer’s perspective, this $1 increase in price is no different than a price increase for any other reason, and responds by decreasing the quantity demanded for the higher priced good.

What would happen if we just considered a transfer of surplus?

If we just considered a transfer of surplus, there would be no deadweight loss. In this case, though, we know that price changes come with a change in quantity. A higher price for consumers will cause a decrease in the quantity demanded, and a lower price for producers will cause a decrease in quantity supplied.

How to view taxes?

Another method to view taxes is through the wedge method. This method recognizes that who pays the tax is ultimately irrelevant. Instead, the wedge method illustrates that a tax drives a wedge between the price consumers pay and the revenue producers receive, equal to the size of the tax levied.

What drives a wedge between what buyers pay and what sellers receive?

Taxes drive a wedge between what buyers pay and what sellers receive

What will organized interest groups benefit from the restrictions?

organized interest groups benefiting from the restrictions will make large contributions to political campaigns while most others will not feel strongly about the restriction

What is the strength of a government?

strength the incentive of governments to operate efficiently and cater to the views of the consumers

What is the difference between the national debt and the federal budget deficit?

the national debt represents the cumulative effect of all previous budget deficits and surpluses, while the federal budget deficit reflects only the additions to the debt in the current year

What would happen if the power of special interests was diminished?

the power of special interests would be diminished and federal spending reduced