micro 21 - taxation

Question 1

what is the purpose of a government imposing a tax?

Answer 1

• more money to invest.
• to pay back national debt.
• to tackle national debt.

Question 2

what are the 2 main types of tax?

Answer 2

direct tax - tax on income, profit or wealth.
indirect tax - tax of products.

Question 4

what is stamp duty?

Answer 4

a tax on everytime you buy a house.

Question 5

effect of imposing a tax on a diagram.

Answer 5

Question 6

what is the burden/incidence?

Answer 6

shows the proportion of tax payed by consumers and producers.

Question 7

incidence of the tax when demand is inelastic:

Answer 7

Question 8

incidence of the tax when demand is elastic:

Answer 8

Question 9

what type of shift is there on unit tax?

Answer 9

there is a parallel shift on unit tax.

Question 10

divergence on a diagram:

Answer 10

only payed on percentage taxes, so more you pay, the more tax you pay.

Question 11

how government can correct market failure by imposing a tax:

production externality.

Answer 11

the government imposes a tax on the production of petrol cars. MPC curve shifts left. this increases the private costs of the producer. the free market level of output decreases from Q1 to QT. prices increase from P1 to PT. This results in a samller deadweight welfare loss to society. the extermality has been intermnalised (making producers pay for it).

Question 12

advantages of imposing a tax:

Answer 12

• increased tax revenue.
• reduces demand/supply of good.

Question 13

explanation and evaluation of increased tax revenue:

Answer 13

It would raise a significant sum of money for the govt as demand for cigarettes is inelastic. because the producer is likely to pass the tax onto consumers, and the consumer is like to be unresponsive to a change in price.
eval:
- revenue from tax on ciggaretes is insignificatn compared to revenue gained from income tax.
- taxes may not reduce consumption as people act on impulse and ignore warnings or price increase.

Question 14

explanation and evaluation of reduces demand/ supply of good:

Answer 14

reduces demand as at higher price, people are rationed out of the market, and may turn to alternatives.
eval:
- demand for some goods may be inelastic as they are addictive, so a lot of people wont give up. this is further exacebated by the cost of living crisis in the uk.
- creates a further problem as taxes of demerit goods are usually regressive.

Question 15

disadvantages of imposing a tax:

Answer 15

• difficult to know the size of the externality.
  -indirect taxes are often regressive.

Question 16

explanation and evaluation of difficult to know the size of the externality:

Answer 16

size of the externality is difficult to measure, because government doesnt have correct information, so they are likely to undertax or overtax. if tax is too small, there will be no impact on the externality, so output will be nearer to the free market level of output. the diagram shows a shift in MPC cause by indirect tax, but the tax is not big enough and therefore the impact is insignificant.
Eval- the tax is likely to generate revenue that can be used for educational proggrames.

Question 17

explanation and evaluation of indirect taxes are often regressive:

Answer 17

tax takes a proportionally greater amount from low income groups. all indirect taxes are regressive.

Eval: even though its regressive, low income groups smoke the most and therefore the tax is more likely to work.

Question 18

how do taxes become law:

Answer 18

tax proposals are often time consuming, this is because they have to go through parliment. often bills are revised to satisfy MP’s before they become law.

Question 19

impact of indirect taxes on consumers:

Answer 19

• increase in price.
• less purchasing power.
• regressive.
• limits consumption of normal goods.
• better education of harmful goods.

Question 20

impact of indirect taxes on producers:

Answer 20

• increase in price.
• decrease in profits.
• decreased demand.
• supply would decrease.

Question 21

impact of indirect taxes on the government:

Answer 21

• more tax revenue.
• more money for investment.
• better pollution levels.
• meeting objectives.