1.2.9 Indirect Taxes and Subsidies Flashcards
1
Q
Indirect taxes
A
Taxes on expenditure
- cause an increase in the cost of supply
- cause the supply curve to shift to the left
2
Q
What are the types of indirect taxes?
A
- Ad valorem
- Specific taxes
3
Q
Ad valorem taxes
A
Percentage of the price of the product or service
- cause the supply curve to shift to the left
- the curve becomes steeper than the original supply curve
4
Q
What is an example of an ad valorem tax?
A
VAT in Dubai is 5%
5
Q
Specific taxes
A
A set amount per unit of the product
- cause supply curve to shift to the left
- parallel to the original supply curve
6
Q
Incidence of tax
A
Relates to how the burden of a tax is distributed between different groups
7
Q
Example of incidence of tax
A
Producers and consumers
8
Q
Subsidy
A
A grant from the government which has the effect of reducing costs of production
- cause the supply curve to shift to the right
