1.2.9 Flashcards
What are indirect taxes?
An indirect tax is paid on the consumption of goods/services.
What is a demerit good?
A good which has harmful impact on consumers/society.
What are 2 types of indirect taxes?
Specific
Ad valorem
What are indirect taxes usually placed on?
Demerit goods to reduce Quantity demanded.
What is a specific tax?
A fixed tax per unit of output.
What is an Ad valorem tax
A tax that is a percentage of purchase price.
What happens on the indirect diagram?
From new equilibrium (S2) vertical line down to old supply line (S1)
What is the purpose of indirect taxes?
To raise government revenue.
What is a producer subsidy?
Per unit amount of money given to a firm by the government.
Why would producer subsidies be given?
To increase the output of merit goods.
What is a Merit good?
Products that are beneficial for society but the free market does not provide enough of them.
