Indirect taxes, subsidies & price controls

Question 1

Which are the two types of taxes?

Answer 1

• Ad valorem

- Fixed

Question 2

What happens with the tax burden if PED = PES?

Answer 2

Tax burden is shared equally

Question 3

What happens with the tax burden if PED > PES?

Answer 3

Tax burden is on producers

Question 4

What happens with the tax burden if PED

Answer 4

Tax burden is on consumers

Question 5

What is a social surplus?

Answer 5

Get more than what you wanted or expected

Question 6

What are indirect taxes?

Answer 6

Taxes that do not go directly to the government

Question 7

What is the formula for consumers’ tax burden?

Answer 7

(Pe2 - Pe1)(Qe2)

Question 8

What is the formula for producer’s tax burden?

Answer 8

(Pe1 - C)(Qe2)

Question 9

What are subsidies?

Answer 9

Financial aid or support extended to an economic sector, with the aim of promoting economic & social policy

Question 10

What are some reasons for the government to provide subsidies?

Answer 10

• increase production to increase demand
• promote competition in the market
• essential goods

Question 11

When are price controls used?

Answer 11

When the free market does not have the best outcome

Question 12

What is a tax?

Answer 12

Amount of money charged by the government for a transaction

Question 13

What is a price ceiling (maximum price) used for?

Answer 13

To protect consumers from rapid price increases & price gouging

Question 14

What do price ceilings generate?

Answer 14

Shortage

Question 15

What does the government do to calm the shortage?

Answer 15

• lottery
• black market
• fist come, first served

Question 16

What is a price floor (minimum price) used for?

Answer 16

To raise income for producers & protect workers with a minimum wage

Question 17

How are price floors put into action?

Answer 17

With taxes to the industry to shift supply