LS11

Question 1

Direct Tax

Answer 1

Tax levied on organisations or individuals. Example is income tax

Question 2

Indirect Tax

Answer 2

A tax levied on goods or services. Example is VAT

Question 3

Specific Tax

Answer 3

It causes a parallel shift in the supply curve. The tax does not vary and is fixed

Question 4

Ad Valorem Tax

Answer 4

Causes a Non-Parallel shift in the supply curve. The tax increases as the amount sold rises.

Question 5

Specific Tax and Ad Valorem Tax both affect the

Answer 5

Supply curve.
Specific tax causes a parallel shift in the supply curve
Ad Valorem tax causes a non parallel shift in the supply curve

Question 6

Why does the government use taxes?

Answer 6

For government revenue and to prevent certain economic activities. An example could be a tax on smoking which is used to discourage that practice.

Question 7

Subsidies

Answer 7

Subsidies are grants given by the government to reduce the cost of production and increase economic efficiency.

Question 8

Movements on the Supply Curve

Answer 8

Changes in price level cause movements on the supply curve
Extensions on the Supply curve are caused by - An increase in the price of a good which leads to an increase in the supply of that good
Contractions on the supply curve are caused by - A decrease in the price of a good which leads to an decrease in supply of that good

Question 9

Changes in the price of a good or service

Answer 9

An increase in the price of a good or service leads to - An increase in supply, a decrease in demand
A decrease in the price of a good or service leads to - A decrease in supply, a decrease in demand

Question 10

Shifts in the Supply Curve are caused by

Answer 10

Non Price Factors

P - Productivity - Increased productivity means that there is a decrease in cost of production and therefore more supply
I - Indirect Tax - The higher the indirect tax, the lower the supply because the cost of production is higher
N - Number of firms - The more firms that there are, the more supply that there is
T - Technology - Advances in technology can lead to an increase in supply and decrease the cost of production
S - Subsidies - Government grants can lead to an decrease in the cost of production and therefore the supply increases