1.2.9, 1.1.6 - indirect taxes and subsidies, free market mixed and comanded economies

Question 1

Tax

Answer 1

A tax is a compulsory payment to the government

Question 2

Direct Taxes

Answer 2

Taken directly from profits or income
- Income
- corporation
- National insurance
- Inheritance Tax
- Capital gains tax

Question 3

Indirect tax

Answer 3

Levied on expenditure and then remitted to government by another party
- Sales tax or VAT (20%)
- Council tax
- Car tax
- Excise duties
- sugar tax
- congestion charge

Question 4

Specific tax

Answer 4

A fixed amount of tax cahrged per unit

Question 5

Ad valorem tax

Answer 5

The Tax is a percentage of the selling price (e.g VAT)

Question 6

Who bares the burden

Answer 6

• the producer cannot push the entire tax onto the consumer as PED is elastic so the producer will absorb some of the tax so that demand does not fall to far
• The consumer pauy the differnce between the equalibrium price and the producers pay the rest

Question 7

Tax revenues

Answer 7

Encourage the production and consumption of goods that are good for society

Question 8

Subsidies

Answer 8

A grant from the government to firms for every unit of output

Question 9

Benefits of subsidies

Answer 9

• Reduces producers production cost hence supply curve shifts downwards by the amount of subsidy per unit
• incentivieses firms to produce more
• The consumer gets the difference in equalibrium price the producer gets the rest

Question 10

Evaluation of subsidies

Answer 10

• Expensive, can acheive same result with putting tax on substitute item
• subsidies are difficult to remove as could cause political uproar

Question 11

Producer benefit

Answer 11

The equalibrium price will not shift by the whole size of the subsidy as then the producers will recieve no benefit so it moves half the price of the substidy so producer gain benefit