1.2|6 Indirect Taxation

Question 1

What is an Indirect Tax ?

Answer 1

A tax imposed on the producers by the government on the sale of goods and service s.

Question 2

What are the two main types of Indirect Tax ?

Answer 2

Specific Tax
Ad Valorem Tax

Question 3

What is Specific Tax ?

Answer 3

A levy set by the Government on goods/services set at a constant amount per item

Question 4

What is Ad Valorem tax ?

Answer 4

A levy set by the Government on goods or services set at as a % of a price

Question 5

What are the purposes of indirect taxes ?

Answer 5

Raising Revenue
Change Consumer Behaviour

Question 6

What happens to the supply curve due to an increase in tax ?

Answer 6

Shifts left

Question 7

How is the S + Tax curve for Ad Valorem Tax different to Unit Tax ?

Answer 7

Not Parallel

Question 8

What is the tax incidence when supply is more elastic than demand ?

Answer 8

Buyers bear most of the tax burden

Question 9

What is the tax incidence when demand is more elastic than supply ?

Answer 9

Producers bear most of the tax burden