Rihaab

Tajmohamed 11R
Mr. Elder

UNIT 4: Glossary.
Ad Valorem (Percentage Taxes):

is a &ixed percentage price of a good or service.

*As the amount of tax increases as the price of
the good/ service increases as well.
~Therefore the new supply curve will be steeper
than the original supply curve.
.e.g. if a percentage tax of 20% is imposed; when the
price of a good is $40. The amount of tax per unit
will be sold?
Solution: 20 x $40= $8 is sold per unit.

100

Excess demand (Shortage):

is when the new price is below the equilibrium,

making the costumers demanding more for the
product whilst the supplies arent producers much to
satisfy their demand (because the producers arent
getting pro&it when the price is low).

Excess supply (Surplus):

Speci=ic (=ixed amount) Tax:

is a &ixed amount of tax per unit of the good or

service sold.
.e.g. If the tax per unit is $3 imposed by the
government. What will happen to the original supply
curve?
Solution: add each point from the original supply
curve by 3. Therefore, the new supply curve will be 3
points higher than the original supply curve.

is when the new price is above the equilibrium,

making the costumers demanding less for the
product whilst the supplies produce more. This is
because the producers are getting more pro&it.

Maximum (low) price controls:

Indirect (excise) Tax:

a tax imposed on a expenditure and sales, upon

goods and services- collected by sellers and passed
onto the government.

Also known as the price ceiling.

-The price is below the equilibrium.
-As there is more demand of that good/service
due to the low price- there isnt enough if its
supply; as the suppliers chose to not supply as they
aren't getting any pro&it from supplying a low cost
good/service.

Minimum (high) price controls:

Also known as the price &loor.

-The price is above the equilibrium.
-As the price is increased suppliers supply more of
the good/service- more than it is demanded; this
causes an excess of supply also known as a surplus.

Rihaab Tajmohamed 11R

Mr. Elder
Subsidy:

when the government pays the suppliers to supply

goods/services when the price is low at cost. This
usually occurs when there is an excess demand and
a shortage of supplies.

Shortage:

also known as an excess of demand. It is when the

prices of a good/service is decreased and there is
more demand of the good/service than supplied.
This is because the suppliers do not get a pro&it
when the price is low. Therefore creates an excess in
demand or shortage of a good/service.

Price controls:

is when the government restrict the prices of

commodities that increase/decreased rapidly in the
market. The government does this by increasing or
decreasing the price of goods/services.

Surplus:

Tax Incidence:

also known as an excess of supply. It is when the

prices of a good/service increases and suppliers
supply more of the good/service than demanded.
Therefore creates an excess in supply or surplus of a
good/service.

is the division of a tax burden between the

consumers and the producers. Also relates to elastic
demand and supply.
*If the supply is more elastic than demand then the
tax burden is to the consumers. And if the demand
is more elastic than supply- the tax burden is more
to the producers.
For example; demand of cigarettes

Welfare:

Inef=icient resource allocation:

also considered as a market failure. Is a situation in

which the allocation of goods and services by a free
market is not ef&icient.
.e.g. Public goods (street lights).

The costs to society created by market inef&iciency.

Deadweight loss can be applied to any de&iciency
caused by an inef&icient allocation of resources.
Price ceilings, price &loors and taxation are all said
to create deadweight losses. Deadweight loss occurs
when supply and demand are not in equilibrium.