Subsidies + Taxes Flashcards
What is a subsidy?
Payment made by government to producers for each unit of subsidised goods they produce to increase quantity supplied to the market.
Read the subsidy diagram on microeconomics diagram folder
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How do Elasticity of Demand affect producer and consumer incidence?
More elastic, greater producer incidence. More inelastic = greater consumer incidence
How do elasticity of supply affect Producer and Consumer Incidence
More elastic supply = greater consumer incidence
More inelastic supply = greater producer incidence
Advantages of subsidy?
Lower prices for consumers and support key industries.
Disadvantages of subsidy?
Higher taxes to cover the cost and opportunity costs.
Why government tax? (3 reasons)
Redistrubute income and wealth, fund government spending and reduce usage on certain goods.
List me 2 types of tax?
Indirect and direct tax
What is direct tax?
Tax on income/wealth (e.g coporation and income tax)
What is indirect tax?
Tax on spending (e.g VAT)
List me 2 types of indirect tax?
Specific Tax and Ad valorem tax.
What is specific tax (indirect)?
Tax per unit is a fixed amount
What is Ad valorem tax (indirect)?
Tax is a % of price
Read the Tax graph on microeconomics diagram folders
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How do elasticity of demand affect consumer and producer burden (tax)
More elastic demand = greater producer burden
More inelastic demand = greater consumer burden
How do elasticity of supply affect consumer and producer burden (tax)
More elastic supply = greater consumer burden
More inelastic supply = greater producer burden
What is progressive taxation?
Progressive taxation is wealthier people pay higher % of their income to tax than poorer people (e.g Income Tax)
What is regressive taxation?
Regresive taxation is wealthier people pay lower % of their income to tax than poorer people (e.g VAT)
What is proportional taxation?
Proportional taxation is wealthier people pay same % of their income to tax than to poorer people
