Chapter 15 Intermediate Micro Notes

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In canada, government imposes a goods & services tax (gst) in some provinces and a harmonized sales tax (hst) in others. Specific tax: is a fixed dollar amount that must be paid n each unit bought or sold. Ad valorem tax: tax that is stated as a % of the good"s price. In a perfectly competitive market, the burden of tax is shared by both consumers & firms. Incidence: of tax indicates how much of the tax burden is borne by various market participants. Depends on shapes of demand & supply curves. Consumer bear the larger share of tax when demand is less elastic then supply. When government is choosing items to tax, he should tax goods for which dead weight loss of taxation is low. Involves choosing goods w/ inelastic supply or demand. Subsidy: payment that reduces the amount that buyers pay for a good or increases the amount that sellers receive.

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