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REVENUE EFFECT: The goal of imposing taxes to generate revenue used to finance the operation of government, most notably to finance the provision of public goods. This is one of two reasons, and the primary reason, that governments impose taxes. The other reason is the allocation effect. Governments work the revenue effect because they need access to income and resources to build highways, defend the nation, educate the population, and maintain the legal system. They purchase these resources with tax revenue generated through the revenue effect.

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Lesson 8: Market Shocks | Unit 3: Single Shifts Page: 11 of 20

Topic: Less Supply <=PAGE BACK | PAGE NEXT=>

The six steps for a decrease in supply:
  • A determinant changes. Sellers expect higher prices.
  • A curve to shifts. The supply curve for hot fudge sundaes shifts leftward.
  • A shortage or a surplus occurs. The decrease in supply causes a shortage of hot fudge sundaes.
  • The price changes. The price of hot fudge sundaes goes up.
  • The quantities demanded and supplied change. The quantity supplied for hot fudge sundaes increases while their quantity demand is reduced.
  • The market imbalance is eliminated and equilibrium is restored. The shortage of hot fudge sundaes is eliminated. The price is higher and the quantity exchanged is less.

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SELF CORRECTION, AGGREGATE MARKET

The automatic process in which the aggregate market adjusts from short-run equilibrium to long-run equilibrium. Self-correction results through shifts of the short-run aggregate supply curve caused by changes in wages (and other resource prices). The self-correction mechanism acts to close both recessionary gaps and inflationary gaps. The short-run aggregate supply curve increases (shifts rightward) due to lower wages to close a recessionary gap and decreases (shifts leftward) due to higher wages to close an inflationary gap.

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BEIGE MUNDORTLE
[What's This?]

Today, you are likely to spend a great deal of time watching the shopping channel looking to buy either a birthday greeting card for your father or a T-shirt commemorating the first day of spring. Be on the lookout for neighborhood pets, especially belligerent parrots.
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The first U.S. fire insurance company was established by Benjamin Franklin in 1752 in Philadelphia.
"Lead the life that will make you kindly and friendly to everyone about you, and you will be surprised what a happy life you will lead."

-- Charles M. Schwab

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