LS11 - Taxes and Subsidies

Question 1

Direct tax

Answer 1

Tax levied directly on an individual or organisation
Income tax, corporate tax

Question 2

Indirect tax

Answer 2

Tax levied on a good or service
VAT

Question 3

Specific tax

Answer 3

Causes a paralle shift in the supply curve - same fixed amount at all prices - fuel duty, beer duty

Question 4

Ad valorem tax

Answer 4

Causes a non-parallel shift in the supply curve - tax increases as the amount sold rises - VAT, import tarrifs

Question 5

Reasons for taxes

Answer 5

Govts impose tax to increase government revenue and to discourage certain ecnomic activites - sugar tax, tobacco tax