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!!! Resources !!!! - elasticity!!!
For the most part, tax revenue will first increase as we raise taxes but as the gross price keeps rising, the quantity decreases more and more. Eventually, the tax revenue will also begin to decrease. the more inelastic the demand, the slower the tax revenue falls.
put taxes on goods in inelastic demand like tobacco and gasoline.
1. Influence people’s behaviour by inducing them away from the goods that are taxed.
2. Raise revenue for the government to spend, making those who receive the expenditures better off.
3. Create a dead weight loss.
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http://www.econmodel.com/classic/terms/deadweight_loss.htm
Deadweight Loss
Deadweight loss is the inefficiency caused by, for example, a tax or monopoly pricing. The diagram below shows a deadweight loss (labeled "gone") caused by a sales tax. By causing a difference between the pre-tax price received by producers and the after-tax price paid by consumers, the government secures the area labeled Government Revenue. This revenue comes at the expense of the consumer surplusand producer surplus that would have existed in the no tax equilibrium. The "gone" triangle of deadweight loss goes to no one because those transactions are prevented by the sales tax.
This diagram is borrowed from Who Pays a Sales Tax?, which applies this concept.
elasticity
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A Tobin tax is the suggested tax on all trade of currency across borders. Named after the economist James Tobin, the tax is intended to put a penalty on short-term speculation in currencies. The original tax rate he proposed was 1%, which was subsequently lowered to between 0.1% and 0.25%.
On August 15, 1971, Richard Nixon announced that the US dollar would no longer convert to gold, effectively ending the Bretton Woods system. Tobin suggested a new system for international currency stability, and proposed that such a system include an international charge on foreign-exchange transactions.
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http://dejavous.net/2009/03
The term “beggar thy neighbor” refers to protectionism policies which have become more popular in this economic crisis. Due to heavy deflation, which causes unemployment and illness of the domestic market, some countries have to carry out policies seeking for their own benefits first, rather than to contribute to the global economic balance and stability.
As opposed to free trade, protectionism restrains trade among nations. Those policies aim to enhance domestic market and to reduce the rate of unemployment. Protectionism governments might impose either tariffs or quotas on imports to restrain imports and by doing so, they shift demand onto domestic production. Two instances are from Mexico and Russia. Another measure which is often used by protectionists is to devaluate the domestic currency, or to use exchange rate manipulation. Doing so will raise the cost of imports and lower the cost of exports, thus improve that country’s trade balance. (Noted that this policy can lead to inflation.) China is one of the recent examples that use this policy.
The benefits of free trade can be explained by David Ricardo’s comparative advantage theory, as the illustration below.
P[world] is the original price of the product and P[tariff] is the higher price after imposing a tariff. Because of the tariff, a tax revenue is created and consumer surplus decreases by a higher rate than the increase of producer surplus. As a result, there is societal loss as the two pink pieces.
In this crisis, a cure for the economics downturn is to inhance the global trade, which was predicted two days ago in the WTO’s most pessimistic report in its 62-year history. This report estimates that the global trade will slump by 9 per cent in this year and the falling rate in developed countries will be higher than that of developing ones, which is just 2-3 percent. Therefore, protectionism policies as a barrier against free trade should be prevented by all the countries. According to World Bank, it is estimated that 17 of the 20 countries coming to London on April 2 had already broken free-trade promises. So, the firm stand against protectionism which many expect the G-20 to take seems having lack of the support from its own members.
