HL - Taxes And Subsidies

Question 1

What is a specific tax?

Answer 1

It’s x amount per unit

Question 2

What’s an Ad Valorem tax?

Answer 2

X% of overall price

Question 3

Equation for total consumer expenditure

Answer 3

p x q

Question 4

What’s the equation for total consumer expenditure after tax?

Answer 4

p(1) x q(1)

Question 5

What’s the equation for producer revenue?

Answer 5

p x q

Question 6

What’s the equation for producer revenue after tax?

Answer 6

p(2) x q(1)

Question 7

What’s the equation for government revenue after tax?

Answer 7

(p1 - p2) x q(1)

Question 8

What’s the burden ( the amount they’ve had to change in price) on the consumer?

Answer 8

(p1 - p) x q(1)

Question 9

What’s the burden ( the amount they’ve had to change in price) on the producer?

Answer 9

(p-p2) x q(1)

Question 10

What is a subsidy?

Answer 10

An amount of money paid by the government to firms for a variety of reasons

Question 11

What’s the equation for original consumer expenditure?

Answer 11

p x q

Question 12

What’s the equation for the new consumer expenditure?

Answer 12

p(1) x q(1)

Question 13

What’s the equation for original producer revenue?

Answer 13

p x q

Question 14

What’s the equation for new producer revenue?

Answer 14

p(2) x q(1)

Question 15

What the equation for government expenditure?

Answer 15

( p2 - p1) x q1

Question 16

What’s the equation for consumer surplus before?

Answer 16

(P3 - p) x q x 1/2

Question 17

What’s the equation for consumer surplus after?

Answer 17

(p3- p1) x q1 x 1/2

Question 18

What’s the equation for producer surplus before?

Answer 18

( p x q) x 1/2

Question 19

What’s the equation for producer surplus after?

Answer 19

(p2 x q1) - (1/2 x ( q1 - q2) x p2)

It’s a trapeze

Question 20

What may happen to consumer expenditure after a subsidy?

Answer 20

It may rise or fall depending on the PED of the product

Question 21

What happens to the burden of the tax if PED = PES

Answer 21

The burden of the taxation will be shared equally between consumers and producers.

Question 22

What happens to the burden of the tax if PED > PES? (PED is more elastic than PES).

Answer 22

The burden of the taxation will be greater on producers than consumers, because consumers are more sensitive to a price change.

Question 23

What happens to the burden of the tax if PED < PES? (PED more inelastic than PES).

Answer 23

The burden of the taxation will fall onto consumers rather than producers, because producers are more sensitive/ reactive to a price change.