1.2.9 Flashcards
What is an indirect tax?
Tax imposed by the government that increases the supply costs faced by producers
What are examples of indirect taxes?
-VAT
-Plastic bag charge
-Fuel duties
-Alcohol duties
-Tobacco duties
-Sugar tax
What are the 2 types of indirect taxes?
Specific (unit) tax
Ad valorem
What is a specific (unit) tax?
Set amount of tax per unit sold
What is an ad valorem tax?
Percentage tax based on the value added by the consumer
What is VAT currently at in the UK?
20%
What is an advantage of ad valorem taxes?
Tax revenue of gov can rise automatically as economy grows.
Means tax rate does not need to be adjusted frequently compared to a specific tax
What is the effect of an indirect tax if demand is perfectly elastic?
Indirect tax on suppliers have no effect on market price if demand is perfectly elastic
What is the affect of an indirect tax if demand in perfectly inelastic?
Indirect tax on suppliers will be passed onto consumers if demand is perfectly inelastic
What are direct taxes?
Taxes taken straight from income
What is a subsidy?
Any form of government financial offered to producers and occasionally consumers
A subsidy paid to producers impacts the supply curve in what way?
Causes an outward shift leading to lower equilibrium price and increase in quantity traded
What are examples of subsides?
-Biofuel subsidies for farmers
-Solar panel
-Apprenticeship schemes
-Aid to businesses making loans
-Subsidies for wind farm investment
-Food/fuel subsidies for consumers
What are the economic and social justifications for a subsidy?
-Helping poorer families with food and childcare costs
-Encourage output/investment
-Protect jobs in industries hit by recession
-Reduce cost of training/employing
-Equitable distrubtion of income
-Reduce external costs
-Encourage art services
Consumer and producer surplus will increase or decrease following a subsidy?
INCREASE
