1.2.9 Indirect taxes and subsidies Flashcards
1
Q
What is an indirect tax?
A
An indirect tax is paid on the consumption of goods/services. It is only paid if consumers make a purchase
2
Q
What are the 2 types of indirect tax?
A
/Specific
/Ad valorem
3
Q
What is a subsidy?
A
A producer subsidy is a per unit amount of money given to a firm by the government.
4
Q
What is the incidence of the subsidy?
A
The incidence (share) of the subsidy is determined by the PED of the product. If governments subsidise goods/services with high PED, the increase in QD will be more than proportional to the decrease in price . Producers keep some of the subsidy and pass the rest on to the consumers.
