LS11- Taxes and Subsidies

Question 1

Direct tax

Answer 1

Tax levied directly on an individual or organisation that can’t be transferred to anyone else.
E.g. income tax, corporate tax, national insurance

Question 2

Indirect tax

Answer 2

Tax levied on a good or service that increases the cost of production for firms but can be transferred to consumers via higher prices.
VAT

Question 3

Specific tax

Answer 3

Causes a parallel shift in the supply curve- same fixed amount at all prices
E.g. fuel duty, beer duty

Question 4

Ad valorem tax

Answer 4

Causes a non parallel shift in the supply curve- tax increases as the amount sold rises
E.g. VAT, import tariffs

Question 5

Reasons for taxes

Answer 5

Govts impose tax to increase government revenue and to discourage certain economic activities
E.g. sugar tax, tobacco tax