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ABSTRACTION METHODS: Abstraction is the process of simplifying the complexities of the real world by ignoring (hopefully) unimportant details, especially (for our purposes) while doing economic analysis. Three common methods of actual, real world abstraction used in economic theories are words, graphs, and equations. Words can be misunderstood. Graphs are a little more precise. And equations tend to be the most precise of the three.
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                           PER UNIT TAX: A tax specified as a percentage of the quantity of a good, service, asset, or other activity. Per unit taxes are often imposed on specific goods or markets. A common per unit tax is that levied on gasoline. People pay a given tax for each gallon of gasoline purchased, regardless of the price of gasoline. An alternative is an ad valorem tax, with is a tax specified as a percentage of the value or price of a good. A per unit tax is a tax in which the tax base is specified as a physical quantity rather than a dollar value. If, for example, the federal government places a per unit tax of 10 cents on gasoline, then buyers and/or sellers are responsible for paying an extra 10 cents on each gallon sold, regardless of the price.If you buy 10 gallons of gasoline for your small compact car, then the federal government collects a total tax of $1 (10 cents x 10 gallons). If your close friends buys 20 gallons for a larger SUV, then the then the federal government collects a total tax of $2 (10 cents x 20 gallons). It matters not that you paid $3 a gallon and your friend paid only $2.50. This type of tax can be illustrated using the following tax calculation equation. The total tax collected is the product of the tax rate and the tax base. A per unit tax exists if the tax base is specified as a physical quantity. In the previous example, the tax rate is the per unit tax of 10 cents per gallon of gasoline and the tax base is the quantity of gasoline, the number of gallons sold. Per unit taxes are generally applied to specific goods, services, or other activities, usually for very specific reasons. A common reason is to invoke the allocation effect as a means of discouraging the production, consumption, or exchange of the particular commodity.For example, the U.S. Environmental Protection Agency might impose a per unit tax on sulfur dioxide emissions from coal fire power plants as a means of discouraging pollution. Fewer emissions mean fewer taxes. In this case, the value of the emissions is not particularly relevant, only the total quantity. An alternative type of tax is an ad valorem tax, in which the tax base is specified as a dollar value. An ad valorem tax, in contrast to a per unit tax, depends on price. A higher price means a higher tax.
Recommended Citation:PER UNIT TAX, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2024. [Accessed: October 30, 2024].
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Today, you are likely to spend a great deal of time at a dollar discount store trying to buy either storage boxes for your computer software CDs or a set of tires. Be on the lookout for spoiled cheese hiding under your bed hatching conspiracies against humanity.
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A thousand years before metal coins were developed, clay tablet "checks" were used as money by the Babylonians.
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"Anyone who has never made a mistake has never tried anything new. " -- Albert Einstein, physicist
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MRS
Marginal Rate of Substitution
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