Microeconomics - Chapter 10

budget deficit

A budget deficit occurs when tax revenues do not cover government spending. A budget deficit occurs when expenses exceed revenue and indicate the financial health of a country. The government generally uses the term budget deficit when referring to spending rather than businesses or individuals. Accrued deficits form national debt.

budget surplus

A budget surplus occurs when tax revenues exceed government spending. A budget surplus is a period when income or receipts exceed outlays or expenditures. A budget surplus often refers to the financial states of governments; individuals prefer to use the term 'savings' instead of the term 'budget surplus. ' A surplus is an indication that the government is being effectively managed

payroll tax (or social insurance tax)

A payroll tax (also known as social insurance tax) is a tax on the wages of workers. Payroll taxes are taxes imposed on employers or employees and are usually calculated as a percentage of the salaries that employers pay their staff. Payroll taxes generally fall into two categories: deductions from an employee's wages, and taxes paid by the employer based on the employee's wages.

price ceiling

A price ceiling is a cap or maximum price of a market good. A price ceiling occurs when the government puts a legal limit on how high the price of a product can be. In order for a price ceiling to be effective, it must be set below the natural market equilibrium. When a price ceiling is set, a shortage occurs.

price floor

A price floor is a lower limit on the price of a market good. A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the government to prevent prices from being too low. The most common price floor is the minimum wage-the minimum price that can be paid for labor. For a price floor to be effective, it must be set above the equilibrium price.

progressive tax system

A progressive tax system involves higher tax rates on those earning higher incomes. A progressive tax is a tax that imposes a lower tax rate on low-income earners compared to those with a higher income, making it based on the taxpayer's ability to pay. That means it takes a larger percentage from high-income earners than it does from low-income individuals.

regressive tax system

A regressive tax system involves lower tax rates on those earning higher incomes. A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, so that the average tax rate exceeds the marginal tax rate. Lump Sum taxes are considered regressive.

consumer sovereignty

Consumer sovereignty is the view that choices made by a consumer reflect his or her true preferences, and outsiders, including the government, should not interfere with these choices. Consumer sovereignty is the theory that consumer preferences determine the production of goods and services. This means consumers can use their spending power as 'votes' for goods. In return, producers will respond to those preferences and produce those goods.

corporate income taxes

Corporate income taxes are taxes paid by firms to the government from their profits. Corporate income taxes are levied by federal and state governments on business profits. Companies use everything in the tax code to lower the cost of taxes paid by reducing their taxable incomes. Even so, most corporations don't pay that rate. They find enough tax loopholes that their effective rate is just about 18%.

Corruption

Corruption refers to the misuse of public funds or the distortion of the allocation of resources for personal gain. Corruption is dishonest behavior by those in positions of power, such as managers or government officials. Corruption can include giving or accepting bribes or inappropriate gifts, double-dealing, under-the-table transactions, manipulating elections, diverting funds, laundering money and defrauding investors.

direct regulation (or command-and control regulation)

Direct regulation, or command-and-control regulation, refers to direct actions by the government to control the amount of a certain activity.

excise tax

Excise taxes are taxes paid when purchasing a specific good. Excise tax refers to an indirect type of taxation imposed on the manufacture, sale or use of certain types of goods and products.

government failures

Government failures refer to inefficiencies caused by a government's interventions. Government failure refers to when the government intervenes in the economy to fix a problem, but only ends up creating more problems. That means it harms social welfare and/or makes the market less efficient. They began to argue that government always created inefficiency and was always a problem.

proportional tax system

In a proportional tax system, households pay the same percentage of their incomes in taxes regardless of their income level. A proportional tax is a tax imposed so that the tax rate is fixed, with no change as the taxable base amount increases or decreases. The amount of the tax is in proportion to the amount subject to taxation. As a result, such a flat marginal rate is consistent with a progressive average tax rate.

Paternalism

Paternalism is the view that consumers do not always know what is best for them, and the government should encourage or induce them to change their actions. Paternalism is action that limits a person's or group's liberty or autonomy and is intended to promote their own good. Paternalism can also imply that the behavior is against or regardless of the will of a person, or also that the behavior expresses an attitude of superiority.

regulation

Regulation refers to actions by the federal or local government directed at influencing market outcomes, such as the quantity traded of a good or service, its price, or its quality and safety. Regulation is broadly defined as imposition of rules by government, backed by the use of penalties that are intended specifically to modify the economic behavior of individuals and firms in the private sector. Various regulatory instruments or targets exist.

sales taxes

Sales taxes are paid by a buyer, as a percentage of the sale price of an item. A sales tax is a consumption tax imposed by the government on the sale of goods and services. A conventional sales tax is levied at the point of sale, collected by the retailer, and passed on to the government.

tax incidence

Tax incidence refers to how the burden of taxation is distributed. Tax incidence (or incidence of tax) is an economic term for understanding the division of a tax burden between stakeholders, such as buyers and sellers or producers and consumers. When supply is more elastic than demand, the tax burden falls on the buyers.

tax revenues (or receipts)

Tax revenues, or receipts, are the money a government collects through a tax.

average tax rate

The average tax rate for a household is given by total taxes paid divided by total income. The average tax rate is the tax rate you pay when you add all sources of taxable income and divide that number into the amount of taxes you owe. In other words, you can calculate your average tax rate by dividing your total tax obligation by your total taxable income.

equity-efficiency trade-off

The equity-efficiency trade-off refers to the trade-off between ensuring an equitable allocation of resources (equity) and increasing social surplus or total output (efficiency). An equity-efficiency tradeoff results when maximizing the productive efficiency of a market leads to a reduction in its equity—as in how equitably its wealth is distributed. The concern for some is that the least affluent members of society receive a disproportionately small share of the increasing wealth.

marginal tax rate

The marginal tax rate refers to how much of the last dollar earned is paid out in tax. The marginal tax rate is the percentage of tax applied to your income for each tax bracket in which you qualify. In essence, the marginal tax rate is the percentage taken from your next dollar of taxable income above a pre-defined income threshold.

welfare state

The welfare state refers to the set of insurance, regulation, and transfer programs operated by the government, including unemployment benefits, pensions, and government-run and financed healthcare. Welfare state refers to a type of governing in which the national government plays a key role in the protection and promotion of the economic and social well-being of its citizens. Most modern countries practice some elements of what is considered the welfare state.

transfer payments

Transfer payments occur when the government gives part of its tax revenue to some individual or group. Transfer payment in economics, a transfer payment (or government transfer or simply transfer) is a redistribution of income and wealth by means of the government making a payment, without goods or services being received in return.