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First, the tax again affects the sellers. The quantity demanded at a given price remains unchanged and therefore the demand curve stays the same. Since the tax is a certain percentage of the price, with increasing price, the tax grows as well. The supply curve shifts upward but the new supply curve is not parallel to the original one.
The concept is often encountered in the context of a government's approach to spending and taxation. A 'procyclical fiscal policy' can be summarised simply as governments choosing to increase government spending and reduce taxes during an economic expansion, but reduce spending and increase taxes during a recession.
The Laffer curve embodies a postulate of supply-side economics: that tax rates and tax revenues are distinct, with government tax revenues the same at a 100% tax rate as they are at a 0% tax rate and maximum revenue somewhere in between these two values. Supply-siders argued that in a high tax rate environment lowering tax rates would result in ...
One implication of the Laffer curve is that increasing tax rates beyond a certain point is counter-productive for raising further tax revenue. Particularly in the United States, conservatives have used the Laffer curve to argue that lower taxes may increase tax revenue. However, the hypothetical maximum revenue point of the Laffer curve for any ...
Recessions. Many factors directly and indirectly serve as the causes of the Great Recession that started in 2008 with the US subprime mortgage crisis.The major causes of the initial subprime mortgage crisis and the following recession include lax lending standards contributing to the real-estate bubbles that have since burst; U.S. government housing policies; and limited regulation of non ...
Supply chain as connected supply and demand curves. In microeconomics, supply and demand is an economic model of price determination in a market.It postulates that, holding all else equal, the unit price for a particular good or other traded item in a perfectly competitive market, will vary until it settles at the market-clearing price, where the quantity demanded equals the quantity supplied ...
How a tax cut affects the economy depends on which tax is cut. Policies that increase disposable income for lower- and middle-income households are more likely to increase overall consumption and "hence stimulate the economy". [3] Tax cuts in isolation boost the economy because they increase government borrowing.
If the linear supply curve intersects the quantity axis PES will equal zero at the point of intersection and will increase as one moves up the curve; [19] however, all points on the curve will have a coefficient of elasticity less than 1. If the linear supply curve intersects the origin PES equals one at the point of origin and along the curve.