1.2.9 Glossary Indirect Taxes And Subsidies

Question 1

Tax

Answer 1

A compulsory contribution to state revenue levied by the government.

Question 2

Regressive tax

Answer 2

A tax imposed by the government that takes a higher percentage of income from those on lower incomes (they pay more in tax relative to their income).

Question 3

Direct tax

Answer 3

A tax (on income) that can’t be transferred and goes straight to the government from the tax payer.

Question 4

Indirect tax

Answer 4

A tax imposed by the government that increases the supply costs of producers. It causes less to be supplied to the market at each price level, is typically collected by intermediaries such as businesses at the point of purchase and the amount is shown by the vertical distance between the pre-tax and post-tax supply curves.

Question 5

Excise duties

Answer 5

Indirect tax levied on three major categories of goods:
- alcoholic drinks
- tobacco product
- road fuels

Question 6

Ad valorem tax

Answer 6

Imposes a tax on a good or asset depending on its value, it is usually expressed as a percentage e.g. Value Added Tax is 20% in the UK.

Question 7

Specific Tax

Answer 7

A tax per unit of good e.g. Wine Duty at £2.23 per bottle.

Question 8

Subsidy

Answer 8

A grant from the government to increase the production and reduce the price.

Question 9

Government subsidy

Answer 9

Any form of government support offered to producers (to reduce the marginal cost of supply) and occasionally consumers.

Question 10

Consumer surplus

Answer 10

The area on a S/D diagram above market price and below the demand curve.

Question 11

Producer surplus

Answer 11

The area on a S/D diagram above the supply curve and below the market price.