Section 6: Government Intervention Flashcards
What is a direct tax?
A tax levied on income and wealth. The burden of a direct tax can’t be passed on to someone else.
What is an indirect tax?
A tax levied on spending. The burden of an indirect tax can be passed on to someone else, for example, by raising the price of the product on which the tax is levied.
What is a progressive tax?
Where the percentage of income paid in tax increases as income increases. The marginal rate of tax is higher than the average rate.
What is a proportional tax?
Where the percentage of income paid in tax is the same at all levels of income. The marginal rate of tax is the same as the average rate.
What is a regressive tax?
Where the percentage of income paid in tax falls as income increases.
Taxation diagram.
What is a subsidy?
A payment to producers to reduce costs and increase supply.
Subsidy Diagram
