2.4 Indirect taxes and subsidies

Question 1

What is direct tax?

Answer 1

paid directly by the individual or business to the government

Question 2

examples of direct tax?

Answer 2

income tax

• coorporation tax
• capital gains tax

Question 3

What is indirect tax?

Answer 3

imposed on producers by the government

Question 4

Why might the government choose to impose indirect tax?

Answer 4

• raises tax revenue

- to reduce consumption/ production of a particular good

Question 5

What ios tax passed onto the consumer called?

Answer 5

consumer incidence of tax

Question 6

what is tax passed onto the producer called?

Answer 6

producer incidence of tax

Question 7

if the coefficient of PED > 1 where is most the tax burden?

Answer 7

absorbed by supplier

Question 8

if the coeffient of PED <1 where is most the indirect tax?

Answer 8

passed onto consumer

Question 9

What is a subsidy?

Answer 9

form of government intervention which usually involves a payment by the government to suppliers that reduce the costs of production and encourages them to increase output of a good or service

Question 10

What does a subsidy cause a producers supply curve to do?

Answer 10

shift to the right

Question 11

Which equilibrium curve does a subsidy have the greatest effect on?

Answer 11

inelastic demand curve