12-Indirect Tax

Question 1

Define Indirect Tax

Answer 1

Indirect Tax are Levied on Expenditure on goods and services and are paid to the government through a third party.
Indirect tax will Increase Production Cost and Shift Supply Curve to Left

Question 2

Define Specific Tax

Answer 2

It is charged as a FIXED AMOUNT PER UNIT of a good.
Specific Tax causes a PARALLEL Shift of the Supply Curve

Question 3

Define Ad Valorem Tax

Answer 3

It is charged as a PERCENTAGE of the Price of a Good.
Ad Valorem Tax causes a PIVOTAL Shift of the Supply Curve.

Question 4

State the Significance of the PED of a good in Tax Incidence

Answer 4

If Demand for a good is PRICE INELASTIC
Consumer Tax Incidence > Producer Tax Incidence
Its because producers can pass on the Rise in Costs in the form of High Prices to Consumers

Question 5

State the Significance of the PED While Determining Tax Revenue For The Government

Answer 5

The Government Must impost Tax on Goods with PRICE INELASTIC DEMAND (oil, Petrol) To Generate Higher Tax Revenue.
However, Consumer Tax Incidence Will be Higher