1.2.9

Question 1

Indirect taxes

Answer 1

Imposed by the government and hey increase production costs for producers
Producers therefor supply less and demand contracts

Question 2

Two types of indirect taxes

Answer 2

Ad valorem
Specific taxes

Question 3

Ad valorem tax

Answer 3

Taxes are percentages

Question 4

Specific tax

Answer 4

Are a set tax per unit

Question 5

The burden of tax with different PED’s

Answer 5

If demand is more elastic (PED>1) the incidence of tax will fall mainly on supplier
Tax paid by consumer is on top
Tax paid by producer is on bottom
If demand is more inelastic (PED<1) the incidence of tax will fall mainly on the consumer

Question 6

Ad valorem taxes

Answer 6

The absolute value of the tax increases as the price of the good increases
Supply curve pivots

Question 7

Subsidies

Answer 7

They shift the supply curve to the right

Question 8

Government spending on subsidy

Answer 8

Calculates by the subsidy per unit times the output

Question 9

Effects of subsidies

Answer 9

-increase output and lower prices for consumers
Increase employment rate
Reduce in quality
Help control inflation
Help boost demand
Encourage consumption of merit goods
Long run aggregate supply could increase if the subsidy is aimed towards a capital project
Could be government failure, if gov provides insufficient subsidy
Gov revenue could be better spent elsewhere
Usually the tax payer that pays for subsidy
Demand is price inelastic= subsidy will have large effect on equilibrium price

Question 10

Consumer subsidy

Answer 10

Encourages consumers to purchase more of a particular good or service
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