Applications: Tax Flashcards
what is GST
goods and services tax, broad consumption tax for most goods/services with elastic demand (10%)
what are the effects of GST
big impact on qunatity produced + employment
if price paid by customers increases, price recieved by producers decreases therefore quantity sold decreases
What is excise tax
much larger and directed at goods with VERY inelastic demand (eg petrol, alochol, tabacco) . Large taxes put on if they have significant health/environmental impact
what are the effects of excise tax
very good at raising government revenue, little impact on quantity produced and revenue
explain the ethics of tax
inelastic goods are usually ones that effect society negatively
consumers can easily dodge tax for an elastic good (by going to substitute) but not for inelastic
does the government put higher taxes on inelastic or elastic goods
governments put high taxes on goods with INELASTIC demand to get the most revenue and because it has a modest effect on production/employment within industry
if you apply a tax to a good how does this show on the curve
will always increase equilibrium price and decrease equilibrium quantity
—> price will rise but always by less than size of tax
how is the size of price and quantity determined
inelastic demand - price is greater, quantity smaller
elastic demand -price is smaller, quantity is greater
BURDEN OF TAX: when demand is relatively inelastic compared with supply….
incidence of burden of tax falls more on consumers
BURDEN OF TAX: when demand is relatively elastic compared with supply….
incidence of burden of tax falls more on producer
BURDEN OF TAX: when demand is perfectly inelastic price will rise by full amount of tax
incidence of burden of tax falls completely on consumer
BURDEN OF TAX: when demand is perfectly elastic price would not increase
incidence of burden of tax falls completely on producer
