Economis Unit 2 Chapter 5

Question 1

What is a tax?

Answer 1

A compulsory payment to the gov

Question 2

What is a direct tax?

Answer 2

A tax on income or wealth

Question 3

What is a indirect tax?

Answer 3

A tax on spending

Question 4

What does government spend on?

Answer 4

Social protection
Health 
Education 
Defence
Law and order 
Debt interest

Question 5

Name some direct taxes

Answer 5

Income - helps re distribute incomes
National insurance contributions - paid by employers and employees it is deducted from wages
Cooperation tax - a tax on profits of companies
Inheritance tax - a tac on the transfer of wealth at the time of death

Question 6

Name some indirect taxes

Answer 6

VAT - a tax on a wide range of goods and services

Excise duties - taxes on specific range of goods such as tobacco, alcohol, petrol

Question 7

What are the benefits of direct taxes?

Answer 7

Help reduces inequalities so when they are taken away they are fairer

Question 8

What are of disadvantages of direct tax?

Answer 8

It harms incentives as people may no longer be willing to work if they are earning what a person on state benefits is earning
May no longer want promotion as the tax deduction is bigger
More noticeable

Question 9

What are the benefits of indirect taxes?

Answer 9

Less noticeable

People have a choice of wether to pay them or not

Question 10

What does an indirect tax do?

Answer 10

Effects the pattern of demand for example consumers will reduce consumption of the good with the most tax on it
- the taxes are discriminated against certain industries that now have less output and employment

Question 11

What is an external cost?

Answer 11

The negative impact of an economic transaction on a third party that is not directly involved in the transaction

Question 12

What is a demerit good ?

Answer 12

A good or service whose consumption is considered unhealthy or undesirable due to its bad effect on consumers it will be over consumed if left to market forces

Question 13

Why is their an uneven distribution of income?

Answer 13

Wages

Other incomes

Question 14

What is the distribution of income?

Answer 14

How incomes are shared out among the people of the country?

Question 15

What is the redistribution of income?

Answer 15

A policy to reduce the inequities of income so its distributed more evenly

Question 16

What are inequalities of income?

Answer 16

Incomes are distributed unevenly so some people have a much higher income than others

Question 17

What are the transfers of payments?

Answer 17

Benefits to citizens which are paid out of tax revenues

Question 18

What is a regressive tax?

Answer 18

Taxes a greater proportion of income from a lower incomes or takes a smaller percentage of a higher income

Question 19

What is a proportional tax?

Answer 19

Takes the same proportion of income from all income levels

Question 20

What is a progressive tax?

Answer 20

Takes a greater proportion of income from higher incomes or a smaller percentage of a lower income

Question 21

Why are indirect taxes regressive?

Answer 21

If a low income earner and a high income earner purchase the same product than the price on the low income earner will be a higher percentage of their income than the high income earner

Question 22

Why is income tax progressive?

Answer 22

The tax allowance is a larger percentage of a lower income so the tax is a lower percentage
People on higher incomes pay a higher rate of tax on extra income

Question 23

Whats the evaluation of distribution of income?

Answer 23

Ensure that families have a basic minimum standard of living
Incentives drop as its not worth getting a pay rise, some may move abroad, this decreases supply side

Question 24

What is market failure?

Answer 24

When the market fails to allocate resources in the beat interests of society as a whole

Question 25

What is a production externality ?

Answer 25

When production takes place there can be effects on people in society who are not part of that production process

Question 26

What is a consumption externality?

Answer 26

Consumption can lead to negative externalities e.g. Cars and pollution

Question 27

What is a positive externality?

Answer 27

Vacation

Question 28

What are the government policies regarding externalities?

Answer 28

Taxes and charges 
Law and regulations 
Subsidies - incentives to change
Provision of merit goods 
Evaluation- which one is most effective, wider effect