Free Market

A free market economy is a type of economy that promotes the production and sale of goods and services, with little to no control or involvement from any central government agency. The economic system is primarily based on supply and demand. Order and power in a free market are decentralized, with individuals making all of their own voluntary…
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Negative Externalities

Externalities are defined as those spillover effects of the consumption or production of a good that are not reflected in the price of the good. More specifically, negative externalities are the costs or harmful consequences experienced by a third party when an economic transaction takes place (i.e. when a good is either produced or consumed).…
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Positive Externalities

Whether positive or negative, externalities are the effects of a good’s consumption or production on third parties; these effects are not accounted for in the price of said good. Externalities are otherwise known as “spill-over effects.” Positive externalities are the benefits experienced by these third parties as a result of consumption or…
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Types of Tax Systems

There are three main types of tax systems, each with very different properties: progressive, proportional, and regressive. This article will describe the most important details of each of these systems, and will also provide a comparison of the three to ensure full understanding. Direct and Indirect Taxes Direct taxes are taxes on…
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Price Floor

A Price Floor or a minimum price is defined as an intervention to raise market prices if the government feels the price is too low. In this case, since the new price is higher, the producers benefit. For a price floor to be effective, the minimum price has to be higher than the equilibrium price. For example, many governments intervene by…
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Regressive Tax

A regressive tax is one that is applied so that the rate of taxation decreases for those who earn higher incomes (so that the rich pay a smaller percentage of their income in taxes than the poor). In such a tax system, those with higher incomes experience a smaller burden of taxation than those with lower incomes. This is particularly true because,…
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