Tax & Subsidies-lecture notes

Why do governments intervene in markets?

• To increase competition among producers

• To make certain goods more affordable or redistribute incomes

• To encourage, discourage, or prohibit the production or consumption of a good

• To raise revenue

What are the two types of taxes mentioned in the text?

• Income tax and property tax

• Direct taxes and indirect taxes

• Sales tax and property tax

• Custom duties and excise tax

What is the objective of imposing indirect taxes?

• Stimulate economic growth

• Reduce government expenditure

• Encourage savings

• Internalise external cost in consumption and production

What is a specific tax?

• A fixed amount of tax levied on each unit of good sold

• A tax imposed on luxury goods

• A tax calculated as a percentage of the price of the good

• A tax levied on income and wealth

How does a specific tax impact the supply curve?

• Causes an upward shift

• Causes no shift

• Causes a rightward shift

• Causes a leftward parallel shift

What determines the amount of tax revenue received by the government?

• Tax per unit and price elasticity of demand

• Tax per unit and quantity supplied

• Tax per unit and consumer surplus

• Tax per unit and producer surplus

What is an ad valorem tax?

• A tax levied on income and wealth

• A tax on the price or value of a good

• A fixed amount of tax per unit of output

• A tax imposed on luxury goods

What is the impact of an ad valorem tax on the supply curve?

• Shifts left and downwards

• No impact on the curve

• Shifts right and downwards

• Shifts left and upwards

What is a subsidy?

• A tax levied on income and wealth

• A fixed amount of tax per unit of output

• A tax on the price or value of a good

• Spending by the government that helps to lower the costs of production

What is the objective of granting a subsidy to a good?

• To encourage consumption of goods with external benefits

• To increase tax revenue

• To discourage exports

• To reduce supply of goods