11 - Taxes And Subsidies

Question 1

What is indirect and direct tax?

Answer 1

Direct - Tax levies directly on a individual or organisation

Indirection - Tax levied on a good or service

Question 2

What is a specific tax and an ad valorem tax?

Answer 2

Specific - Tax is the same fixed amount at all prices (parallel shift in supply curve)

Ad valorem - Tax increases as amount sold rises (non-parallel shift)

Question 3

What are some example of direct and indirect tax?

Answer 3

Direct - Income (45% top rate) and corporation (18%) tax

Indirect - VAT (20%) and fuel duty

Question 4

What is the point of tax?

Answer 4

Raise government revenue

Discourage certain economic activities (alcohol, cigarettes)

Question 5

What is a subsidy and what is the point of it?

Answer 5

Money given by the government to firms in order to increase production