A tax is a compulsory financial charge or some other type of levy imposed upon a taxpayer by a governmental organization in order to fund various public expenditures. A failure to pay, along with evasion of or resistance to taxation, is punishable by law. Taxes consist of direct or indirect taxes and may be paid in money or as its labour equivalent. The first known taxation took place in Ancient Egypt around 3000–2800 BC.
A deadweight loss, also known as excess burden or allocative inefficiency, is a loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved. That can be caused by monopoly pricing in the case of artificial scarcity, an externality, a tax or subsidy, or a binding price ceiling or price floor such as a minimum wage.
In economics, elasticity is the measurement of the proportional change of an economic variable in response to a change in another. It shows how easy it is for the supplier and consumer to change their behavior and substitute another good, the strength of an incentive over choices per the relative opportunity cost.
Price elasticity of demand is a measure used in economics to show the responsiveness, or elasticity, of the quantity demanded of a good or service to a change in its price when nothing but the price changes. More precisely, it gives the percentage change in quantity demanded in response to a one percent change in price.
In economics and consumer theory, a Giffen good is a product that people consume more of as the price rises and vice versa—violating the basic law of demand in microeconomics. For any other sort of good, as the price of the good rises, the substitution effect makes consumers purchase less of it, and more of substitute goods; for most goods, the income effect reinforces this decline in demand for the good. But a Giffen good is so strongly an inferior good in the minds of consumers that this contrary income effect more than offsets the substitution effect, and the net effect of the good's price rise is to increase demand for it. A Giffen good is considered to be the opposite of an ordinary good.
In macroeconomics, Aggregate Demand (AD) or Domestic Final Demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the demand for the gross domestic product of a country. It specifies the amounts of goods and services that will be purchased at all possible price levels.
In economics, goods are materials that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods that are tangible property, and services, which are non-physical. A good may be a consumable item that is useful to people but scarce in relation to its demand, so that human effort is required to obtain it. In contrast, free goods, such as air, are naturally in abundant supply and need no conscious effort to obtain them. Personal goods are things such as televisions, living room furniture, wallets, cellular telephones, almost anything owned or used on a daily basis that is not food related. Commercial goods are construed as any tangible product that is manufactured and then made available for supply to be used in an industry of commerce. Commercial goods could be tractors, commercial vehicles, mobile structures, airplanes and even roofing materials. Commercial and personal goods as categories are very broad and cover almost everything a person sees from the time they wake up in their home, on their commute to work to their arrival at the workplace.
In economics, a demand curve is a graph depicting the relationship between the price of a certain commodity and the quantity of that commodity that is demanded at that price. Demand curves may be used to model the price-quantity relationship for an individual consumer, or more commonly for all consumers in a particular market. It is generally assumed that demand curves are downward-sloping, as shown in the adjacent image. This is because of the law of demand: for most goods, the quantity demanded will decrease in response to an increase in price, and will increase in response to a decrease in price.
In economics, the Jevons paradox occurs when technological progress or government policy increases the efficiency with which a resource is used, but the rate of consumption of that resource rises due to increasing demand. The Jevons paradox is perhaps the most widely known paradox in environmental economics. However, governments and environmentalists generally assume that efficiency gains will lower resource consumption, ignoring the possibility of the paradox arising.
Real estate economics is the application of economic techniques to real estate markets. It tries to describe, explain, and predict patterns of prices, supply, and demand. The closely related field of housing economics is narrower in scope, concentrating on residential real estate markets, while the research of real estate trends focuses on the business and structural changes affecting the industry. Both draw on partial equilibrium analysis, urban economics, spatial economics, basic and extensive research, surveys, and finance.
The wealth elasticity of demand, in microeconomics and macroeconomics, is the proportional change in the consumption of a good relative to a change in consumers' wealth. Measuring and accounting for the variability in this elasticity is a continuing problem in behavioral finance and consumer theory.
The Marshall–Lerner condition is the condition that an exchange rate devaluation or depreciation will only cause a balance of trade improvement if the absolute sum of the long-term export and import demand elasticities is greater than unity. If the domestic currency devalues, imports become more expensive and exports become cheaper due to the change in relative prices.
In economics, tax incidence or tax burden is the effect of a particular tax on the distribution of economic welfare. Economists distinguish between the entities who ultimately bear the tax burden and those on whom tax is initially imposed. The tax burden measures the true economic weight of the tax, measured by the difference between real incomes or utilities before and after imposing the tax. An individuality on whom the tax is levied does not have to bear the true size of the tax. For the example of this difference, assume a firm, that contains employer and employees. The tax imposed on the employer is divided. The concept of tax incidence was initially brought to economists' attention by the French Physiocrats, in particular François Quesnay, who argued that the incidence of all taxation falls ultimately on landowners and is at the expense of land rent. Tax incidence is said to "fall" upon the group that ultimately bears the burden of, or ultimately suffers a loss from, the tax. The key concept of tax incidence is that the tax incidence or tax burden does not depend on where the revenue is collected, but on the price elasticity of demand and price elasticity of supply. As a general policy matter, the tax incidence should not violate the principles of a desirable tax system, especially fairness and transparency.
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given period of time. The relationship between price and quantity demanded is also known as the demand curve. Preferences which underlie demand, are influenced by cost, benefit, odds and other variables.
In economics, derived demand is demand for a factor of production or intermediate good that occurs as a result of the demand for another intermediate or final good. In essence, the demand for, say, a factor of production by a firm is dependent on the demand by consumers for the product produced by the firm. The term was first introduced by Alfred Marshall in his Principles of Economics in 1890.
Optimal tax theory or the theory of optimal taxation is the study of designing and implementing a tax that maximises a social welfare function subject to economic constraints. The social welfare function used is typically a function of individuals' utilities, most commonly a utilitarian function, so the tax system is chosen to maximise the sum of individual utilities. Tax revenue is required to fund the provision of public goods and other government services, as well as for redistribution from rich to poor individuals. However, most taxes distort individual behaviour, because the activity that was being taxed becomes relatively less desirable; for instance, taxes on labour income reduce the incentive to work. The optimization problem involves minimizing these distortions away from the efficient state, caused by taxation, while achieving desired levels of redistribution and provision of public services. Exceptions to this trade-off include non-distortionary taxes, such as lump-sum taxes, where individuals cannot change their behaviour to reduce their tax burden, and Pigouvian taxes, where the market consumption of a good is inefficient and a tax brings consumption closer to the efficient level.
In monetary economics, the demand for money is the desired holding of financial assets in the form of money: that is, cash or bank deposits rather than investments. It can refer to the demand for money narrowly defined as M1, or for money in the broader sense of M2 or M3.
In any technical subject, words commonly used in everyday life acquire very specific technical meanings, and confusion can arise when someone is uncertain of the intended meaning of a word. This article explains the differences in meaning between some technical terms used in economics and the corresponding terms in everyday usage.
This glossary of economics is a list of definitions of terms and concepts used in economics, its sub-disciplines, and related fields.
