1.2.9 Indirect taxes and subsidies Flashcards
Ad valorem tax
an indirect tax based on a percentage of the sales price of a good
Causes an inward shift in the supply curve
E.g. VAT
Indirect tax
A tax imposed by the government that increases the supply cost of producers
producers may be able to pass on an indirect tax- depending on PED and PES
Specific tax
A type of indirect tax which is a set tax per unit imposed by the government
Black market
an illegal market in which the market price is higher than a legally imposed price ceiling.
Black markets can develop where there is shortage demand/shortage for a product
Emissions tax
A charge made to firms that pollute the environment based on the quantity of pollution they admit
E.G.the volume of CO2 emissions
Excise duties
Indirect taxes on our spending on goods and services such as cigarettes, fuel and alcohol
Incidence of a tax
how the final burden of a tax is shared out.
If demand for a good is price elastic (greater than 1), then the tax may fall mainly on the producer as they will be unable to put prices up without losing a lot of demand.
If a good price inelastic (less than 1), then the tax may fall mainly on the consumer as the producer will be able to put prices up, without losing a lot of demand
Direct tax
taxes that go straight to the government from whoever is paying the tax, the burden of the tax cannot be passed onto to somebody else
E.G. income tax or corporation tax
Specific/unit tax
A set tax per unit imposed by the government
E.G.the specific tax (duty) on fuel sold in the UK, did duty on a litre of fuel might be 80p
Subsidies
payments from the government to producers that reduce their costs.
The effect of a subsidy is to increase supply and therefore reduce the market equilibrium price.
Tax incidence
When the burden of an indirect tax is shared between consumers and producers
