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Distinction Between Pre-Tax and Post-Tax Prices and Wages
Price Wedge Caused by Consumption Taxes
When a consumption tax is imposed, it creates a wedge between the price paid by the consumer and the price received by the firm. The consumer pays a higher price that includes the tax, while the firm receives a lower net price for the good or service.
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Introduction to Macroeconomics Course
Ch.2 Unemployment, wages, and inequality: Supply-side policies and institutions - The Economy 2.0 Macroeconomics @ CORE Econ
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Price Wedge Caused by Consumption Taxes
Definition of Take-Home Nominal Wage (W)
Definition of Gross Wage (Wage Cost to Employer)
Price Wedge Caused by Labor Taxes
A retail store sells a bicycle for a listed price of $500. A 10% sales tax is applied at the point of sale. Which of the following correctly identifies the total price the customer pays and the amount of revenue the store earns from the sale itself?
Analyzing the Impact of a Payroll Tax
Interpreting Wage and Cost Discrepancies
Match each economic term with its correct description in the context of taxes.
If a government imposes a new 5% tax on the sale of a specific good, the final price paid by the consumer will be exactly 5% higher than the original pre-tax price, and the net revenue received by the producer for that good will remain the same as it was before the tax.
Comparing Tax Effects in Product and Labor Markets
An employer agrees to pay a new hire a gross annual salary of $60,000. The government then introduces a new 10% payroll tax that is legally required to be paid by the employer on top of the salary. Which statement best analyzes the distinction between the employer's total cost for this employee and the employee's gross earnings?
Calculating Wage Components
A company pays a freelance consultant a total of $1,100 for a project. This total payment includes a 10% tax on the consultant's services that the company is required to remit to the government. Based on this information, what was the consultant's pre-tax fee for the project?
An employer pays a worker a gross wage of $4,000 per month. In addition to this wage, the employer is required to pay a 6% payroll tax directly to the government based on the worker's gross wage. The total monthly cost of this employee to the employer is $____.
Learn After
Formula for Consumer Price with a Consumption Tax
A government imposes a tax on the sale of a specific good, which is collected from the seller. After the market adjusts to the tax, which statement correctly analyzes the relationship between the price paid by the consumer and the net price received by the producer?
If a government imposes a consumption tax on a product that sellers are legally required to remit, the price consumers pay will increase by the full amount of the tax, and the net price sellers receive will be the same as it was before the tax.
Calculating a Tax Wedge
Explaining the Tax Wedge
Evaluating the Burden of a Consumption Tax
A government introduces a new tax on a specific good, which is collected from the seller. Match each economic term with its correct description in this new market environment.
When a tax is levied on a good, the resulting difference between the price paid by the consumer and the price received by the producer is known as the tax ______.
A government introduces a tax on a specific good, which sellers are required to remit. Arrange the following events in the logical sequence that leads to the creation of a price wedge.
Graphical Analysis of a Consumption Tax
A government imposes a new $2 per unit tax on the production of a specific good, which the producers are legally required to pay. After the market adjusts to the tax, which of the following outcomes is the most likely?