| When there is
1. Inelastic Demand
2. Elastic Demand
Describe the Area of the Consumer Burden and Producer Burden | 1. Inelastic Demand makes the Consumer Burden larger than the Producer Burden. This is notable as the Area is Larger
2. Elastic Demand leads to the Exact Opposite. Producer Burden is larger. |
| What is the Purpose of
1. Governments dishing out Subsidies
2. Governments taxing a Good (Indirect Taxe) | 1. Subsidies are attempting to Encourage Demand for a Good. Subsidies is Money paid by the Government to the Producer to make it Cheaper.
2. Indirect Taxes aim to Reduce Demand for certain Goods. Since the Price goes up, the aim is that the Quantity Consumed falls as the Market Price has risen |
| Simply Explain what happens in a Demand x Supply Diagram when a Tax or Subsidy is Applied | -Taxes and Subsidies affect the Supply Curve.
-The Supply Curve shifts Left if it's a Tax, Right if it is a Subsidy
-The Market Price and Quantity Changes, resulting in a Contraction or Extension of Demand |
| Explain how the Benefit of a Subsidy can Benefit both the Consumer and Firm, and how it can be Illustrated
-What about the Total Cost to the Government? | -Subsidies encourage Increased Production, and for Prices to Fall. This leads to an Extension of Demand
-The Benefit of such changes in the Market can be seen in the Demand x Supply Diagram
-CONSUMER GAIN is illustrated from the Rectangle made by the Old Price and New Price as the Length, and the Width being NEW Quantity
-PRODUCER GAIN is illustrated from the Rectangle made by the New Price and Price Point A. Price Point A is when the Quantity is the SAME as the NEW Quantity Consumed / Supplied.
-The Cost to the Government is the CONSUMER GAIN + PRODUCER GAIN |
| What happens to Consumer and Producer Gain when Demand is
-Inelastic
-Elastic | 1. With Inelastic Demand: The Consumer benefits more from a Subsidy. This is reflected with an Increased Area of Consumer Gain when compared to Producer Gain
2. With Elastic Demand: The Producer benefits more from a Subsidy. Just Reverse Consumer Gain and Producer Gain in 1. |
| What does Consumer and Producer Gain even mean? | -Consumer Gain refers to the Falling in Price. What they gain is that they pay LESS for the Goods than they would have if no Subsidy Existed.
-Producer Gain refers to the Extra Revenue they gain from the Government that they can Keep. |
| Explain how Indirect Taxes affects both Consumers and Producers in a Negative Way.
-What does the Government gain? | -Indirect Taxes leads to the Price of Goods Increasing leading to a Contraction of Demand. Indirect Taxes affects both the Consumers and Producers
-The CONSUMER BURDEN is the Rectangle made by the New Price and Old Price being the Length, and the New Quantity being the Width
-The PRODUCER BURDEN is the Rectangle made by the Old Price Point and Price Point A. Price Point A is when Quantity is = to the New Quantity. The width is also the New Quantity Point
-The Government gets Revenue from the CONSUMER BURDEN + PRODUCER BURDEN. |
| What does
1. Consumer Burden
2. Producer Burden
mean? | 1. Consumer Burden refers to the Rising Price from the Indirect Tax making Consumers lose out because they have to Pay MORE for the Goods than if the Tax weren't in place
2. Producer Burden refers to Firms losing out by Paying some of their Revenue to the Government. |
| When there is
1. Inelastic Demand
2. Elastic Demand
Describe the Area of the Consumer Burden and Producer Burden | 1. Inelastic Demand makes the Consumer Burden larger than the Producer Burden. This is notable as the Area is Larger
2. Elastic Demand leads to the Exact Opposite. Producer Burden is larger. |
