taxes

Question 1

meaning

Answer 1

involuntary payment of funds to the government by a household or firm which they receive no goods and services in return

Question 2

also means

Answer 2

price of good (MC) = original price + tax

Question 3

paid to

Answer 3

to tax authorities by suppliers indirectly

Question 4

what does taxes do

Answer 4

increases firm’s MC.

for profit-maximising firms willing to supply the same units of output at the minimum price, they must increase price of good until it is sufficient to cover higher MC

Question 5

equilibrium price & qty

Answer 5

firms reduce supply to avoid marginal losses.

shortage. Ep up, Eq left

Question 6

Efficiency (society’s economic welfare is maximised)

Answer 6

if market is already efficient(current lvl of output maximises society’s welfare), gov interventions to market confirm will lead to loss of economic welfare. indirect taxes distort price signals and lead to loss of allocative efficiency

Question 7

PED

Answer 7

elastic = discourage consumption (ip< dq)

inelastic = need to tax higher cuz (ip > dq). but headache cuz doing so ppl will have strong resistance to gov, increase smuggling

Question 8

PES

Answer 8

magnitude of p and q change (effectiveness):
elastic = higher

inelastic = lower

Question 9

Certainty of outcome

Answer 9

depends on PED & PES

Question 10

Feasility / Effect on gov budget (but)

Answer 10

raise revenue for government, increase gov budget BUT strong opposition from ppl and so gov need political will to execute

Question 11

Equity (equal sharing, exact distribution and division)

Answer 11

indirect taxes = REGRESSIVE EFFECT cuz taxes apply to equally to both rich and poor. larger % income will be taken away from the poor = poor most affected

exception: taxing on luxury goods