taxes and surplus

Question 1

what is an indirect tax

Answer 1

is a tax on expenditure

Question 2

what is the incidence of tax

Answer 2

The incidence of tax measures the burden of the tax on the taxpayer

Question 3

what is consumer surplus

Answer 3

is the difference between what the consumer is willing to pay for a good and what they actually pay

Question 4

how to find consumer surplus

Answer 4

Consumer is the area below the demand curve

Question 5

what is producer surplus

Answer 5

Producer surplus is the difference between the price producers are willing and able to supply a good or service for the price they actually receive

Question 6

how to find producer surplus

Answer 6

is above the supply curve

Question 7

Some evaluation arguments when assessing subsidies:

Answer 7

Are the subsidies effective in meeting their aims?
Will they achieve the desired stimulus to demand
Is a subsidy sufficient? What other incentives be needed

Question 8

Will subsidy affect productivity/effiecntcy

Answer 8

Subsides for investments and research can bring positive spillovers
But firms may become dependent on state aid

Question 9

How much does subsidy cost and who benefits?

Answer 9

Is a subsidy part self financing? Will it create more tax revenue?
Or does a subsidy create an expensive extra burden for taxpayers

Question 10

Does subsidy help to create a market failure?

Answer 10

For example - do more people find work with child care subsides
Or does a subsidy lead to undesired consequences

Question 11

Share price falls what happens?

Answer 11

Prices decreases
Revenue decreases
They will have to cut costs
Dividend will depress

Question 12

what are susbsidy for producer

Answer 12

Job retention scheme - wage subsidy for furloughed
Youth unemploymeplyed - governments grants for business employing
State aid for loss making business - keeps them operational
Low cost affordable housing - subsidies for construction companies to build
Export subsides

Question 13

subsidies for consumer example

Answer 13

Electrical vechiles

Question 14

who gains more when subsidy is ped elastic

Answer 14

Producer gain more

Question 15

who gains more when subsidy is inelastic

Answer 15

The consumers gain more when per inelastic

Question 16

what is total cost to government

Answer 16

total cost to government of the subsidy would be the per unit subsidy x the amount sold

Question 17

what is an ad valorem

Answer 17

An ad valorem tax imposes a tax on a good or asset depending on its value.

Question 18

What part of the demand graph represents consumer surplus.

Answer 18

The area under the demand curve but above the equilbrium price (line)

Question 19

What part of the supply graph represents producer surplus.

Answer 19

The area above the supply curve but below the equilibrium price (line)

Question 20

Define deadweight loss.

Answer 20

Deadweight loss is the reduction in total surplus that occurs as a result of a market inefficicency

Question 21

What is the problem with deadweight loss?

Answer 21

It is a market inefficiency, it could of been gained by producers or consumers but instead it is lost so no one is benefitting from it

Question 22

How is deadweight loss and price elasticities related?

Answer 22

The more price elastic a good is , the greater the deadweight loss will be

Question 23

Define direct tax

Answer 23

Tax levied directly on an individual or organisation

Question 24

On a specific tax, what is the status of tax

Answer 24

It is fixed at all prices

Question 25

What is an example of specific tax being applied on

Answer 25

Fuel duty, beer duty

Question 26

What is the status of tax on a ad valorem graph

Answer 26

Tax increases as the amount sold rises

Question 27

What does an ad valorem supply demand graph cause

Answer 27

A non parallel shift in supply curve

Question 28

What are examples of the ad valorem tax

Answer 28

VAT, import tariffs

Question 29

Why do governments imposed taxes

Answer 29

Limit economic activity and to raise gov revenue

Question 30

Who carries more tax burden in…
A. Elastic demand 
B inelastic demand

Answer 30

A. Producers


B. Consumers

Question 31

When no tax is applied what state is the market in

Answer 31

Equilibrium

Question 32

Define subsidy

Answer 32

Money given by the government to enlarge production

Question 33

Who gains more when…
A. Demand is elastic 
B. Demand is inelastic

Answer 33

A. Producer
B. Consumer