Indirect taxes

Question 1

What are the reasons for indirect taxes in micro ?

Answer 1

Raise GOVT revenue

Correct Market failures

Question 2

What is an indirect tax ?

Answer 2

Expenditure tax that increases cost of production for firms but can be transferred to consumers via higher prices

Question 3

What is a direct tax ?

Answer 3

Tax on income that cant be transferred ( income or corp tax )

Question 4

What are the 2 types of indirect taxes ?

Answer 4

Specific = A tax per unit e.g petrol duty

Ad Valorem = A tax as a % of the price ( VAT )

Question 5

What are the key impacts of indirect taxes on a market ?

Answer 5

Supply curve moves to the left
Price at market increases
Consumers bear more costs

Question 6

What are the reactions of certain people to indirect taxes ?

Answer 6

Consumers - H8 this as they pay more
Producers - wont like it as less rev
GOVT - likes this as more tax rev
GOVT - may not like this as MNC’s may move / demand falls in economy