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Taxation and Government Intervention

After reading this chapter, you should be able to:

Demonstrate the cost of taxation to consumers and producers.

Distinguish between the benefit principle and the ability-to-pay principle of taxation.

Explain why the person who physically pays the tax is not necessarily the person who bears the burden of the tax.

Demonstrate how an effective price ceiling is the equivalent of a tax on producers and a subsidy to consumers.

Define rent seeking and show how it is related to elasticity.

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