relatively high tax designed to raise revenue and reduce consumption of a socially undesirable product
200
the final burden of a tax is affected by what?
elasticity
200
what are tax loopholes?
exceptions or oversights in the tax that allow some people and businesses to avoid paying taxes
200
what is proportional tax?
imposes the same percentage rate of taxation on everyone
300
what happens to employment when taxes on factory goods raise the cost of production?
employment goes down
300
what are the 2 principles of taxation?
benefit principle and ability to pay principle
300
when demand for a product is elastic less of the tax can be shifted to who?
buyer
300
what are the 3 criteria's used to judge the effectiveness of a tax?
Equity, simplicity, efficiency
300
what is progressive tax?
tax where percentage of income paid in tax rises as level of income rises
400
what happens to land, capital, labor, and entrepreneurs when cost of production goes up?
land, capital, labor, and entrepreneurs get cut back
400
Example of how taxes are used to encourage or discourage certain activities?
Homeowners use interest payments on mortgages as a tax deduction, encourages home ownership
400
will the shift be more or less if the demand is inelastic?
more
400
fair taxes have fewer exceptions, deductions, and ____
exemptions
400
what is regressive tax?
imposes a higher percentage rate of taxation on low incomes than high incomes
500
Economic impact on taxes affects what 3 things?
resource allocation, consumer behavior, and the nations productivity and growth
500
difference between benefit principle and ability to pay principle
benefit- belief that taxes should be paid according to benefits received regardless of income. Ability to pay- belief that taxes should be paid according to level of income regardless of benefits received.
500
how will taxing a utility company affect consumers?
consumers will have to pay higher utility bills
500
an effective tax should be reasonably successful at generating what?
revenue
500
difference between average tax rate and marginal tax rate
average- total taxable income divided by the total income. marginal- applies to the next dollar of taxable income