2.9 Indirect Taxes and Subsidies Flashcards
1
Q
What is a specific tax?
A
Set tax per unit - parallel shift
2
Q
What is an ad valorem tax?
A
Percentage tax - pivotal shift
3
Q
What is an indirect tax?
A
Tax imposed that increases firm supply costs
4
Q
Examples of specific taxes?
A
1) Plastic Bag Charge
2) Tobacco Duties
3) Alcohol Duties
5
Q
Examples of ad valorem taxes?
A
1) VAT
2) National Insurance
6
Q
What are subsidies?
A
Any form of government support to a firm or industry
7
Q
Benefits of indirect taxes?
A
1) Tax revenue
2) Used to change behaviour
8
Q
Drawbacks of indirect taxes?
A
1) Increased prices
2) Reduced supply
9
Q
Benefits of subsidies?
A
1) Lower prices
2) Protect jobs
3) Encourage investment
10
Q
Drawbacks of subsidies?
A
1) Opportunity cost
2) Subsidy dependence
3) Distort price mechanism
