14) Indirect taxes and subsidies

Question 1

What is an indirect tax?

Answer 1

An indirect tax is a tax imposed by the government that increases the supply costs faced by producers e.g. VAT

Question 2

How is the amount of tax shown on a diagram?

Answer 2

The amount of the tax is always shown by the vertical distance between the two supply curves

Question 3

How does an ad valorem tax differ from a specific tax?

Answer 3

Specific tax - A set tax per unit e.g. a £5 tax per unit sold

Ad valorem tax - A percentage tax e.g. 20% on the unit price

Question 4

What are 6 indirect taxes in the UK?

Answer 4

1) VAT
2) Landfill Tax
3) Fuel Duties
4) Alcohol duties
5) Tobacco duties
6) Air passenger duties