Topic 6: Labour Markets Flashcards
What is Direct tax, give examples
Those paid by individuals or business firms on which they are levied – can’t be passed to someone else
Examples: Personal income tax, company tax and capital gains tax
What are the types of Taxes
Direct, Indirect
What is Indirect tax, give examples
They are levied on individuals and business firms, can be passed on to someone else, and are attached to G&S rather than to an individual or company.
Examples: Sales tax (GST) – as it’s levied on the seller, but passed onto the consumer in the form of a higher price
What is a progressive tax system, give examples
Progressive:
Higher-income earners pay a greater proportion of their income as tax than lower-income earners (ART rises as income increases)
Example: Australian progressive Tax system
What is a regressive tax system
Regressive:
Higher tax income earners would pay a smaller proportion of their income tax than lower income earners (ART falls as an individual’s income increases)
What are the 2 taxation systems
Progressive and Regressive
What is a proportional tax system
Proportional:
All income earners pay the same proportion of their income tax (ART remains constant as an individual’s income increases)
Why does the government intervene indirect tax, give examples
Indirect tax Gov intervenes by adding a large tax number on cigarettes or leaded petrol to divert resources away from the production of good. High prices on these products are meant to drive people away from taking up smoking and encouraging them to quit. The higher health care services associated with smokers, who have a higher chance of diseases.
The higher price of leaded petrol diverts people to use unleaded petrol (modern-day cars), causing less environmental harm. Road pricing (charging higher road tolls during peak hours) is another example of using revenue collection to influence individual behaviour and reduce traffic congestion.
How to calculate the average rate of tax (ART)
total tax / Total income
What is the average rate of tax (ART)
The proportion of total income earned that is paid in the form of tax
What is the marginal rate of tax
Proprion of any increase in income that must be paid as tax. Represents how many cents in every extra dollar earned that must be paid to gov.
List some market failures
What are negative externalities
What are positive externalties
What is MSC
Marginal social cost -
The cost of producing one additional unit of a good, including the cost of the negative externality. It’s the cost to the entire economy and the environment. Pricing could be to add tax, increasing the price of the product shifting the supply curve to decrease and people will buy less of it, but if people buy that new price, that added cost will cover the negative externality
