Subsidies and Indirect Taxes Flashcards
Subsidies and indirect taxes
Caan affect consumers and producers.
Subsidie
Encourage demand
Money paid by gov go producer of good to make it cheaper.
Indirect tax
Tax on a good.
Reduce demand
Aim to discourage people from buying as tax raises market price.
Subsidies and indirect tax
Changes price
Which either leads to an extension or contraction in demand.
The benefit of subsidies is
Divided between consumers and producers.
Relative amounts gained by consumers and producers depend on
The price Elasticities of demand and supply
Consumer gain
Fall in price of good. Gain by paying less than they would have without subsidie.
Producer gain
Gain by receiving extra revenue from the gov that they can keep.
Diagram page 30
The more price inelastic the demand curve is
The greater the consumers gain if from the subsidie.
The more price elastic the demand curve
The greater the producers gain is from the subsidy
Indirect taxes also affect
Both consumers and producers
Taxes
Increase price of good. Reduction in demand.
Shifts supply curve left.
Relative proportion borne by producers and consumers
Depends on price Elasticities of demand and supply.
Consumer burden
Rise in price. Lose out by paying more for the good than if the tax not there.
Producer burden
They lose out by paying some revenue to the government.
