2.7.1 Indirect Tax Flashcards
1
Q
Define indirect tax
A
Tax added to the price of a good or service and collected by the firm selling a good or service and paid to the government.
2
Q
Two types of indirect tax
A
- Ad valorem (percentage)
- Specific tax (fixed price)
3
Q
Reasons for taxation
A
- Source of government revenue
- Reduce demand of demerit goods
4
Q
Affects of tax on a market
A
- Fall in market supply
- New equilibrium
5
Q
How to calculate total tax
A
Tax amount x quantity sold
6
Q
Identity the consumer incidence and the producer incidence
A
Yellow - Consumer
Green - Producer
7
Q
Draw a diagram showing indirect tax on a market
A
8
Q
Impact on consumers
A
- Experience a loss of consumer surplus
- Welfare increase in the long term?
9
Q
Impact on producers
A
- Reduces consumer surplus
- Fall in profits
- Unemployment
10
Q
Impact on government
A
- Revenue
- Benefits in reduction of demerit goods
- Possible political consequences
11
Q
Welfare loss
A
Triangle area
