Indirect Tax

Question 1

Def

Answer 1

Tax on goods and services

Question 2

Works by

Answer 2

Increasing firms cost of production meaning at a given price firms make less profit.
Less incentive to supply. Supply curve shift to left S1 to S2.
Increasing equilibrium price from p1 to p2. Contraction of demand q1 to q2
Reduce quantity to social optimum
Correcting overproduction or overconsumption.

Question 3

Evaluative points

Answer 3

Difficult to put values on externality
Risk of Gov due to inadequate info
Opportunity cost of monitoriting and risk of black market
Regressive
Effectiveness on ped
Potentially inflationary

Question 4

Demand is price inelastic

Answer 4

Significant increase in price but quantity demanded falls less than proportionally

Question 5

Demand is price elastic

Answer 5

Small increase in price but quanity demanded fall more than proportionally