1.2.9

Question 1

What are indirect taxes?

Answer 1

An amount of money paid to the government.

Question 2

What are subsidies?

Answer 2

A form of financial support or other given to producers and sometimes consumers.

Question 3

Name 2 examples of indirect taxes

Answer 3

• VAT at 20%
• Tobacco duties at £3.76 per pack + 17% VAT
• Alcohol duties at 41.5p per beer pint

Question 4

What’s the effect of indirect taxes on producers?

Answer 4

This would increase the firm’s cost of production.

This may result in a higher cost being passed onto the consumer.

Question 5

With inelastic demand, draw a graph that shows the effect of indirect taxes on producers

Answer 5

The basis is a regular supply and demand diagram but with;

• A relatively inelastic demand curve
• The regular supply curve before tax
• A supply curve shifted in with tax (S1 + tax)
• Y axis as Price
• X axis as Quantity

Question 6

With elastic demand, draw a graph that shows the effect of indirect taxes on producers

Answer 6

The basis is a regular supply and demand diagram but with;

• A relatively elastic demand curve
• The regular supply curve before tax
• A supply curve shifted in with tax (S1 + tax)
• Y axis as Price
• X axis as Quantity

Question 7

With inelastic demand, draw a graph that shows the effect of subsidies on producers

Answer 7

The basis is a regular supply and demand diagram but with;

• A relatively inelastic demand curve
• The regular supply curve before tax
• A supply curve shifted out with tax (S1 + subsidy)
• Y axis as Price
• X axis as Quantity

Question 8

With elastic demand, draw a graph that shows the effect of subsidies on producers

Answer 8

The basis is a regular supply and demand diagram but with;

• A relatively elastic demand curve
• The regular supply curve before tax
• A supply curve shifted out with tax (S1 + subsidy)
• Y axis as Price
• X axis as Quantit