Chapter 4.3

Question 1

Indirect taxes

Answer 1

Taxes imposed on spending to buy goods and services

Question 2

Direct taxes

Answer 2

Taxes involving payment of the tax by the taxpayers directly to the government

Question 3

Why does the government impose indirect taxes?

Answer 3

As a source of revenue
To discourage consumption of goods that are harmful for the individual
To redistribute income
To improve the allocation of resources by correcting negative externalities

Question 4

Consequences of indirect taxes for stakeholders

Answer 4

Consumers lose
Producers lose
The government gains
Workers lose
Society loses

Question 5

Which supply curve is used when identifying producer surplus after the imposition of indirect tax?

Answer 5

The initial pre-tax supply curve

Question 6

What does the imposition of indirect taxes result in for social welfare?

Answer 6

Reduced consumer and producer surplus, part of which is converted to government revenue and the rest is welfare loss