definitions

Question 1

indirect tax

Answer 1

a government levy on the sale of certain goods and services (e.g. specific taxes and ad valorem taxes)

Question 2

specific tax (per unit tax)

Answer 2

imposes a fixed amount of tax on each product

Question 3

ad valorem tax

Answer 3

imposes a percentage tax on the value of a good or service

Question 4

subsidy

Answer 4

financial assistance from the government to encourage output (such as the sale of exports), to reduce the price of certain merit goods (such as education, training and healthcare), or to keep down the cost of living (such as food prices)

Question 5

price ceiling (maximum price)

Answer 5

occurs when the government sets a price below the market equilibrium price to encourage output and consumption

Question 6

price floor (minimum price)

Answer 6

the imposition of a price guarantee set above the market price to encourage supply of a certain good or service