1.2.9 Indirect taxes and subsidies

Question 1

what are indirect taxes and the two types

Answer 1

an indirect tax is a tax on expenditure where the person who is charged the tax is not the person responsible for paying the sum to the government

the business is required to pay the tax but the consumer is charged instead

two types of indirect tax:
- ad valorem is where the tax payable increases in proportion to the value of the good, i.e. VAT
- specific tax is where an amount is added to the price, the tax increases with the amount bought rather than the value of goods, i.e. excise duties (fuel - 10p/litre)

Question 2

Supply and demand analysis, elasticities, and:
the impact of indirect taxes on consumers, producers and government

Answer 2

consumer and producer incidence is how much of the tax each individual will pay

aim of tax is to lower output of producers to reduce externalities

taxes raise government revenues, taxes on demerit goods can be hypothecated to decrease use of demerit goods

Question 3

Supply and demand analysis, elasticities, and:
the incidence of indirect taxes on consumers and producers

Answer 3

light work

Question 4

Supply and demand analysis, elasticities, and:
the impact of subsidies on consumers, producers and government

Answer 4

consumers receive a lower price
producers increase output due to lower costs
government spending increases to pay subsidies

Question 5

Supply and demand analysis, elasticities, and:
the area that represents the producer subsidy and consumer subsidy

Answer 5

light work