Tax And Subsidies Flashcards
Direct tax
A tax levied on the income or profits of the person who pays it, rather than on goods or services
Indirect tax
A tax levied on goods or services rather than income or profits
What does a tax shift
A tax shifts supply inwards
Tax revenue calculation
Quantity sold x Size of tax
Top rectangle of tax revenue box =
Incidence of tax on consumers - (How much tax consumers pay_
Bottom rectangle of tax revenue box
Incidence of tax on producers - (How much tax producers pay)
In what circumstance do consumers pay more of the tax
If demand is more elastic than supply
In what circumstance do producers pay more of the tax
If supply is more elastic than demand
What is a specific tax
A fixed amount of tax that must be paid on each unit sold
What is an Ad valorem tax
A tax charged as a percentage of the price of a good
What is the purpose of collecting tax revenue
To encourage the production and consumption of goods that are best for society
Define: Subsidy
A grant from the government to increase supply
What does a subsidy shift
A subsidy shifts supply outwards
How to calculate the cost of a subsidy
Total cost = Size of subsidy x quantity sold
Consumer benefit from the subsidy = (Where on graph)
Bottom rectangle
