Taxation

Question 1

what are indirect taxes

Answer 1

taxes imposed on purchasing goods or services[ not based on income]

Question 2

name the two types of taxation

Answer 2

specific taxes . Ad valorem taxes

Question 3

what are specific taxes

Answer 3

a fixed amount that’s charges per unit of a good, no matter what the price of the good is

Question 4

give an example of a specific tax scenario

Answer 4

a set amount of tax could be put on bottles of wine regardless of their price

Question 5

what are Ad valorem taxes

Answer 5

taxes charged as a proportion of the price of a good

Question 6

give an example of an Ad valorem tax scenario

Answer 6

a 50 percent tax for a 10 pound product would mean it’s 5 pounds/ for a 100 pound product it’s 20 pounds

Question 7

do indirect taxes shift the supply curve to the left or right and why

Answer 7

left as costs of producers increase

Question 8

in a specific tax diagram, does a specific tax cause a parallel or not parallel shift of the supply curve

Answer 8

parallel

Question 9

in a specific tax diagram, why is the shift of the supply curve parallel

Answer 9

the tax is the same fixed amount whether the price of the good is high or low

Question 10

In an Ad valorem tax diagram, is the shift of the supply curve parallel or non parallel

Answer 10

non parallel

Question 11

In an Ad valorem diagram, why is the shift of the supply curve non parallel

Answer 11

the tax is bigger on higher priced goods, smaller on smaller priced goods

Question 12

do governments put extra indirect taxes on goods with negative or positive externalities

Answer 12

negative externalities

Question 13

name 3 goods with negative externalities that governments often put extra indirect taxes on

Answer 13

petrol , alcohol , tobacco

Question 14

Governments may use multiple indirect taxes [ both direct and ad valorem] on one item. give an example of how this happens in the UK

Answer 14

in UK , cigarettes have a SPECIFIC TAX called excise duty and AD VALOREM tax on their retail price

Question 15

what is the aim of a tax

Answer 15

to make the producer and / or consumer of the product cover the costs of its externalities

Question 16

the taxes make revenue for the government. what is then done after this/ give an example too.

Answer 16

the gov then uses the tax rev to offset the effects of the externalities . e.g. the rev generated from a tax on alcohol could be used to pay for additional police time needed to deal with alcohol- related crime

Question 17

besides excise duty on cigarettes , what is another SPECIFIC TAX example in the UK/ what is its aim

Answer 17

landfill tax / aim is to offset the impact of landfill on the environment

Question 18

who is charged landfill tax as an environmental tax

Answer 18

local authorities or firms that dispose tax at landfill sites

Question 19

how are landfill taxes set/ give an example

Answer 19

set at n amount which attempts to reflect the full social and external costs of landfills / e.g. pollution released from landfill sites

Question 20

what should landfill tax encourage/ what does this then mean

Answer 20

encourages recycling / which in turn reduces the negative externalities caused by landfill that harm the environment / people

Question 21

what is a disadvantage of landfill taxes

Answer 21

fly - tipping has increased by firms to avid having to pay the tax

Question 22

what is fly- tipping

Answer 22

illegal dumping of waste on land that is not designated for waste disposal, e.g. farmland and roadsides

Question 23

On the diagram which shows the total amount of tax paid, does the consumer of firm pay more tax in general

Answer 23

consumer

Question 24

what does the amount of tax passed on to the consumer depend on

Answer 24

the price elasticity of demand of the good

Question 25

If demand for a good is price inelastic, what happens tax wise

Answer 25

most or all of the extra cost is likely to be passed on

Question 26

If demand for a good is price elastic, what is the producer most likely to do

Answer 26

take on most of the extra cost

Question 27

give 2 advantages of taxes

Answer 27

1- reduces demand for goods with negative externalities / 2- If demand isn’t reduced, there’s still the benefit that the revenue gained can be used by gov to offset externalities

Question 28

give 2 advantages of indirect taxes

Answer 28

1- reduces demand for goods with negative externalities / 2- If demand isn’t reduced, there’s still the benefit that the revenue gained can be used by gov to offset externalities

Question 29

Give 5 disadvantages of indirect taxes

Answer 29

1- Can be difficult to put a monetary value on the ‘cost’ of the negative externalities 2- for goods where demand is price inelastic, the demand isn’t reduced [ unfair for consumer] 3- firms may choose to relocate abroad to avoid taxes which reduces employment and means less tax rev 4- Increase cost of production which means less supply so less international competitiveness 5-the gov may not wisely spend the taxes on demerit goods [ a good or service with negative externalities] on reducing the effects of their externalities