1.2.9 Indirect Taxs And Subsidies Flashcards
What is indirect tax (goods and services)? Examples?
Tax on expenditure. VAT, beer tax, landfill tax.
What are the two types of tax?
Ad valorem tax - proportion to value of good eg VAT.
Specific or unit tax - amount of tax levied does not change with value of the good but quantity.
Subsidy definition?
Grant given by government to encourage production or consumption of a particular good.
Why can the tax not always be payed off by the consumer in price?
Inelastic products will lose demand due to price increase.
What is the aim of taxations and how does it do this?
Decrease consumption and production.
By increasing production costs and market prices.
Can you draw me tax effect on an inelastic good?
Show effects on gov, consumer and producers.
Draw an advalorem tax?
Shift right supply gets further away from original supply as it increases.
