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UMD - ECON 200 - ECON 200 Study Guide for Exam 2 - Study Guide

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UMD - ECON 200 - ECON 200 Study Guide for Exam 2 - Study Guide

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background image ECON 200 Study Guide Exam #2 Chapter 20- Taxes  - In case you don’t remember what a tax is, it is money collected  from either consumers or producers that is meant to raise 
government revenue and/or change behavior
3 Types of Taxes  1. Proportional: a tax that takes the same percentage of income  from all taxpayers (Example: everyone pays 20% of their 
2. Progressive: a tax that charges lower income people a smaller  percentage than high income people (Example: our income tax…
the richer you are, the greater percentage you are paying in your
tax bracket) 
3. Regressive: a tax that charges lower income people a larger  percentage of their income than high income people (Example: a
$1 tax on applesauce would affect someone who makes 10 
dollars more than someone who makes 100 dollars.) 
How to Calculate Income Tax 1. Add up all of your income (both active and passive sources)
2. Subtract business expenses (at this point this is your gross 
income) 3. Subtract personal exemptions and deductions (marriage or  property tax)—at this point you have calculated your taxable 
4. Apply the income tax bracket that you’re in (remember to tax  each bracket using the specific rate, not everything based off of 
the highest percentage you hit)
5. Lastly subtract the taxes that you have already paid during the  year or tax credits - I’m going to quickly touch on marriage. Getting married can  either help or hurt your tax situations. If you and your spouse 
have different incomes it will help you, but if they are similar 
then it will hurt you. 
Deadweight Loss  - This is the money that literally disappears when a tax is imposed. Nobody gets it.  - The more elastic a good is, the more deadweight loss 
VIDEO of how to calculate (
v=kF1c8ujpTYY) Calculating Revenue from Taxes  - Tax Revenue=tax per unit (x) number of units  A couple of keyword  Marginal Tax Rate- the tax rate charged on the last dollar that  a taxpayer earns (each individual tax rate when you’re looking at
the table of tax brackets) 
background image Head Tax- everyone is charged the same tax (6% sales tax)-  typically hurts those who are poorer  Chapter 18- Externalities  - An externality is a cost or benefit imposed without compensation on someone other than the person who caused it  - Basically, in simpler terms it is an effect that an action has on a  third party  Private vs. Social Cost/Benefit - Private cost/benefit is what we’re used to. It’s the supply or  demand line - Then we add another line in either above or below the private  line - This new line is the social cost/benefit 
- The space in between in the external cost 
- Here’s a picture ( q=externality+graph&espv=2&biw=1440&bih=739&source=ln
4 Types of Externalities  1. Positive Externality on Production- I live right next to a bee farm  so they pollinate my flowers without me even asking them too 
(yes some people talk to bees- case in point…Bee Movie)---This 
would cause the social benefit to be higher than the private 
2. Negative Externality on Production- A huge is producing lots of  air pollution. Now the social cost will be higher than the private 
3. Positive Externality on Consumption- Getting a flu shot, because  now everyone else will benefit from you not having the flu. This 
makes social benefit higher than private benefit. 
4. Negative Externality on Consumption- Let’s say you are a  suburban family that just moved next to a frat house. Loud music
is always blaring from the house; this would be a negative 
externality because the family is the third party. Therefore social 
cost would be lower than private cost. 
The New Total Surplus  - The past it used to be the surplus from producers and consumers
- Now we need to factor in externality surplus when calculating 
Key Terms Network Externality- the effect that an additional user of a  good has on the value of that good (the more people that make a
Facebook profile, the more the company grows)
Pigovian Tax- A tax that is trying to offset the cost of an  externality (for every gallon of pollutants you throw into the 
river, you have to pay a fine)

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School: University of Maryland
Department: Economics
Course: Principles of Economics: Microeconomics
Professor: Robert Schwab
Term: Fall 2016
Tags: Economics
Name: ECON 200 Study Guide for Exam 2
Description: It covers chapters 9, 10, 18,19 and 20. Good Luck!
Uploaded: 11/05/2016
5 Pages 100 Views 80 Unlocks
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