Subsidy and Taxes

Question 1

Ad valorem tax

Answer 1

A tax levied or charges as a percentage of the price eg VAT = 20%

Question 2

Incidence of tax

Answer 2

The burden or incidence of tax that has to be paid by the tax payer

Question 3

Indirect tax

Answer 3

A tax on expenditure that comes in 2 forms, Ad valorem or a Specific tax

Question 4

Specific tax

Answer 4

A tax levied as a fixed amount for a unit of a good

Question 5

Subsidy

Answer 5

A grant provided by the government to encourage the production or consumption of a good or service. It reduces cost of production for firms and should reduce prices for consumers