vocab list

Question 1

specific tax

Answer 1

A fixed amount of tax imposed on a good or service per unit sold. The supply curves remain parallel because the amount of tax is the same regardless of the price of the good.

Question 1

ad valorem tax

Answer 1

A fixed percentage tax charged on the selling price of a group of products. The amount of the tax increases as the price increases (e.g. VAT). The supply curve shifts upwards by the amount of the tax per unit, but the gap between the two supply curves increases as the price rises.

Question 2

indirect tax

Answer 2

Taxes on expenditure that are paid indirectly by consumers when they purchase a good, as they are included in the price of the good. Indirect taxes affect the supply curve and are a tax placed on firms according to the level of consumers’ purchases.

Question 3

direct tax

Answer 3

a tax which is paid directly from earnings (income from households, profit from firms. this affects the aggregate demand.