TERM DEFINTION

Budget Deficit Budget deficit occurs when tax revenues cannot

cover Government spending.
Budget surplus Budget surplus occurs when tax revenues exceed
Government spending.

Tax revenues/Receipts Tax revenues or receipts are the money a

government collects through tax
Payroll tax/social insurance tax Payroll tax (aka Social insurance tax) is the tax on
worker’s wages.
Corporate income tax Corporate income tax is the tax paid by firms to the
government from their profit.
Sales tax Sales tax is a percentage of the sale price of a good
paid which is paid by the buyer.
Excise tax Excise tax is a the tax paid when purchasing a
specific good.
Transfer payments Transfer payments occur when the government
transfers part of its revenue to a individual or
group.
Average tax rate Avg tax rate for a household, is the total taxes paid
divided by the total income.

Marginal tax rate Marginal tax refers to how much of the last dollar
in the income is paid to taxes.

Progressive Tax System A progressive tax system occurs when higher taxes
are imposed on higher incomes.

Regressive Tax System Regressive tax system occurs when lower taxes are
imposed on lower incomes.

Proportional Tax System In proportional tax system, all households pay the
same percentage of taxes regardless of their
income.
Tax incidence Tax incidence refers to how the burden of tax is
distributed.

Deadweight loss pg275 The loss in surplus not made up by tax revenues.

Regulation Regulation refers to the actions made by the

Direct regulation/ Command and control
regulation
federal or local government to influence market
outcomes, such as the quantity, price, quality and
safety of a good or service.
Direct regulation (also known as command and
control regulation) refers to the direct action taken
by the govt. to control the amount of a certain
activity.
Price Ceiling A price ceiling is a cap or maximum price of a good
or service.

Price floor Price floor refers to the lower limit of a good or

service.

Government Failure Government Failure refers to the inefficiencies

caused by govt. interventions.

Corruption Corruption refers to the misuse of public funds or

Equity-Efficiency Trade-off
Welfare State
distortion of allocation of resources for personal
gain.
The equity versus efficiency trade-off refers to the
trade off between equitable allocation of resources
and increasing social surplus or total output.

Consumer Sovereignty

Paternalism