Which Would Be a Better Source of Tax Revenue for the Government

question 124

Essay

Which would be a better source of tax revenue for the government, a good with elastic or a good with an inelastic demand? Explain your reasoning.

Describe the factors that influence the term structure of interest rates and the formation of yield curves.

Understand the economic implications of various yield curve shapes (normal, inverted, flat).

Discriminate between different types of risk premiums (default, maturity, liquidity) and their impact on interest rates.

Recognize the theories explaining the term structure of interest rates (expectations theory, liquidity preference theory, market segmentation theory).

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Definitions:

Economic Profit

The return flowing to those who provide the economy with the economic resource of entrepreneurial ability; the total revenue of a firm less its economic costs (which include both explicit costs and implicit costs); also called “pure profit” and “above-normal profit.”

X-Inefficiency

The difference between actual output and the maximum possible output that could be achieved with the same input of resources, due to inefficiencies within a firm.

Dynamic Change

The process of constant, sometimes unpredictable change within systems or environments, affecting economic, social, or technological aspects over time.

Usury Laws

Legislation that limits the amount of interest that can be charged on loans.