1.4.1

Question 1

What are some examples of market not working properly and fail to provide people of what they need?

Answer 1

Healthcare and education might not be available if left to free market.
- Governments step into fix and make sure these services are available

Question 2

What is an Indirect tax?

Answer 2

A tax on goods and services that people buy. Like cigarettes and petrol:
- These raise the cost of production for businesses
- Make products more expensive for consumers so they might buy less

Question 3

When do governments use indirect tax?

Answer 3

Discourage people from buying demerit goods like cigarettes.

Question 4

What are the two type of indirect taxes?

Answer 4

Ad valorem and specific taxes

Question 5

What are Ad valorem taxes?

Answer 5

Percentage tax on the price of a product like VAT

Question 6

Who pays Ad valorem Taxes?

Answer 6

Producers can pass the tax onto consumers by raising the price or might pay the taxes themselves if they think this will prevent people buying their product

Question 7

When do we call demand price inelastic?

Answer 7

If demand for a product doesn’t change even when the price changes for example cigarettes. Consumers will pay the tax

Question 8

Whats a specific tax?

Answer 8

A fixed amount of tax per unit. Similar to valorem tax. Consumers pay more when demand is inelastic

Question 9

Why do governments use indirect taxes?

Answer 9

To reduce consumption on harmful goods. Discourages people to buy goods.
- To reduce external costs . Polluters pay for the damage

Question 10

What is a subsidy?

Answer 10

A financial boost from government to help producers
- Lowers production costs so businesses can produce more
- encourages people to buy goods that are good for society