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Economics shush > Taxes + PED & PES > Flashcards

Taxes + PED & PES Flashcards

1
Q

What is a Direct Tax?

A

Tax levied directly on individual or organisation

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2
Q

What is an Indirect Tax?

A

Tax levied on a good or service

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3
Q

What is a Specific Tax?

A
  • Causes a parallel shift in the supply curve
  • Tax is same and fixed at all prices
  • e.g Fuel duty and Beer duty
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4
Q

What is an Ad Valorem Tax?

A
  • Causes a non-parallel shift in the supply curve
  • Tax increases as amount sold rises
  • e.g VAT and Input Tariff
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5
Q

What is a Subsidy?

A

Money given by the Government to encourage production

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6
Q

Why do Government impose taxes?

A
  • To raise Government revenue

- To discourage certain economic activities

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7
Q

Who would pay taxes if PED is perfectly elastic and PES is perfectly inelastic?

A

The supplier would pay all the tax

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8
Q

Who would pay taxes if the PED is perfectly inelastic and the supply curve is perfectly elastic?

A

The consumer will pay all the tax

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9
Q

What is Price elasticity of demand?

A

Measures responsiveness of demand given a change in price

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10
Q

When is demand said to be price elastic?

A

When a change in price causes a proportionally larger change in demand

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11
Q

When is demand said to be price inelastic?

A

When a change in price causes a proportionally smaller change in demand

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12
Q

What determines PED?

A
  • No. of substitutes, lot = more elastic
  • Necessity, e.g water is inelastic
  • Luxury, e.g lambo, ppl don’t need it so elastic
  • Addictiveness, alcohol would tend to be inelastic
  • Time, more time to find replacement
  • Proportion of income, takes more money it will be more price elastic
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13
Q

Equation for PED

A

%change in quantity demanded / %change in price

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14
Q

PED units?

A
  • More than 1 = Elastic
  • Between 0 and 1 Inelastic
  • Exactly 1 = Unitary
  • 0 = Perfectly Elastic
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15
Q

What is Price Elasticity of Supply?

A

Measures responsiveness o supply given a change in price

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16
Q

When is Supply said to be Price Elastic?

A

When a change in price causes a proportionally larger change in supply

17
Q

When is Supply said to be Price Inelastic?

A

When a change in price causes a proportionally smaller change in supply

18
Q

What are determinants of PES?

A
  • Time to produce product greater time, more price inelastic cannot respond quickly
  • Level of spare capacity, more price elastic with more spare capacity, more available for production
  • Number of stock, more finished goods mean more price elasticity
  • Time, more time allows more price elasticity to produce etc
  • Perishability of product, harder to stock perishable products, therefore price inelastic
19
Q

What is PES equation?

A

%change in quantity supplied / %change in price

Economics shush (20 decks)

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