indirect tax

Question 1

what is an indirect tax?


Answer 1

a tax on expenditure that increases cost of production for firms but can be transferred to customers via higher prices.

Question 2

what ate the two core reasons for indirect tax?


Answer 2

-raise government revenue,e.g VAT
-solve market failure,e.g alcohol/fuel duties

Question 3

what is a specific tax?


Answer 3

a tax per unit which is a set amount, e.g wine duty at £2.23/bottle

Question 4

what is ad valorem tax?

Answer 4

a tax as a percentage e.g VAT at 20%

Question 5

what is the difference between a specific tax diagram and an ad valorem tax diagram?


Answer 5

in specific tax the supply curves are parallel to each other where as in ad valorem the supply curves are diverging

Question 6

why are supply curves different in a specific tax diagram to an ad valorem tax diagram?


Answer 6

specific tax are parallel to show how tax per unit will always remain the same no matter how much is bought.Ad valorem is diverging because the % of a high number will be higher then a % of a lower number,IE unit tax depends on price