tax

Question 1

define indirect tax

Answer 1

tax on a good or service which is added to their price/tax on consumer expenditure

Question 2

what are the 2 types of indirect tax and how are they different?

Answer 2

1. specific tax is a set amount per unit. the supply curve shifts inwards parallel to the original. 2. Ad valorem is tax set as a percentage of the good. supply curve shifts inwards pivoted.

Question 3

define direct tax

Answer 3

it is a tax that is placed directly on the economic agent such as income or cooperate tax

Question 4

define tax

Answer 4

it is a compulsory payment to the government (but you shouldnt define tax in questions, always define the type of tax that is relevant to that question)

Question 5

how do you find the per unit tax using your tax graph

Answer 5

draw a line vertically through Q1 until you meet the new equilibrium point (E1) distance between E1 and S is the per unit tax. (for subsidy you draw a line through Q1 an E1 until you meet S. vertical distance between S and E1 is the subsidy).