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TAX RATE: The percent of the tax base that is collected as tax. The tax rate can be a flat, or proportional, rate, meaning it is a constant percent of the tax base regardless of the size or value of the base. Or the tax rate can change as the tax base changes. If the tax rate increases, the tax is progressive. If the tax rate decreases, the tax is regressive.

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Lesson 5: Demand | Unit 2: Law of Demand Page: 7 of 20

Topic: Substitution Effect <=PAGE BACK | PAGE NEXT=>

The second reason for the law of demand is the substitution effect.
  • The substitution effect exists because a change in the price of a good makes this price relatively higher or lower than the prices of other goods.
  • The higher the price of a good, then the more expensive it is relative to other goods. The lower the price of a good, then the less expensive it is relative to other goods.
  • Other prices remain unchanged.
  • The substitution effect is usually more important than the income effect.

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RISK PREMIUM

The difference between a guaranteed or certain income and a risky income that generate the same level of utility. Risk premium is the amount of income that a risk adverse person is willing to pay to avoid the risk. Alternatively, it is the amount of income that a risk loving person is willing to pay to engage in risk. For risk aversion, the risk premium is the amount a person would pay for insurance.

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Today, you are likely to spend a great deal of time at a crowded estate auction wanting to buy either a flower arrangement with daisies and carnations for your uncle or a coffee cup commemorating next Thursday. Be on the lookout for high interest rates.
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The first paper currency used in North America was pasteboard playing cards "temporarily" authorized as money by the colonial governor of French Canada, awaiting "real money" from France.
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