Econ 1B: Microeconomics – Chapter 4

A payment the government makes to either the buyer or the seller, usually on a per-unit basis, when a good or service is purchased or sold.

A curve illustrating the relationship between the tax rate and tax revenues. Tax revenues will be low at both very high and very low tax rates. When tax rates are quite high, lowering them can increase tax revenue.

A condition in which the amount of a good offered for sale by producers is less than the amount demanded by buyers at the existing price. An increase in price would eliminate the shortage.

A legally established maximum price sellers can charge for a good or resource.

Government-mandated prices that are generally imposed in the form of maximum or minimum legal prices.

The market for inputs used to produce goods and services.

The additional tax liability a person faces divided by his or her additional taxable income. It is the percentage of an extra dollar of income earned that must be paid in taxes. It is the marginal tax rate that is relevant in personal decision-making.

A tax in which the average tax rate falls with income. People with higher incomes will pay a lower percentage of their income in taxes.

A tax in which the average tax rate is the same at all income levels. Everyone pays the same percentage of income in taxes.

A tax in which the average tax rate rises with income. People with higher incomes will pay a higher percentage of their income in taxes.

Tax liability divided by taxable income. It is the percentage of income paid in taxes.

Another term for deadweight loss. It reflects losses that occur when beneficial activities are forgone because they are taxed.

The loss of gains from trade to buyers and sellers that occurs when a tax is imposed. The deadweight loss imposes a burden on both buyers and sellers over and above the actual payment of the tax.

The per-unit amount of the tax or the percentage rate at which the economic activity is taxed.

The level or quantity of an economic activity that is taxed. Higher tax rates reduce the level of the tax base because they make the activity less attractive.

he way the burden of a tax is distributed among economic units (consumers, producers, employees, employers, and so on). The actual tax burden does not always fall on those who are statutorily assigned to pay the tax.

A market that operates outside the legal system in which either illegal goods are sold or legal goods are sold at illegal prices or terms.

Legislation requiring that workers be paid at least the stated minimum hourly rate of pay.

A condition in which the amount of a good offered for sale by producers is greater than the amount that buyers will purchase at the existing price. A decline in price would eliminate the surplus.

A legally established minimum price buyers must pay for a good or resource.