Overview
Taxes and subsidies are powerful tools used by governments to influence economic behavior. Taxes generate revenue necessary for public services, while subsidies encourage specific industries or activities. Understanding their effects on market equilibrium, supply, and demand is crucial for analyzing...
Key Terms
Example: If a tax is imposed on a product, both consumers and producers may share the burden.
Example: Farmers may receive subsidies to promote agricultural production.
Example: At equilibrium, the price of a product stabilizes.
Example: If demand is elastic, a small price increase can lead to a large drop in quantity demanded.
Example: A subsidy can shift the supply curve to the right, increasing supply.
Example: A tax increase can shift the demand curve to the left, decreasing demand.