ECONOMIC CH13

What are ad valorem taxes based on?

• A proportion or percentage of the price charged

• The total income of the consumer

• A fixed amount per unit purchased

• The quantity of goods produced

What is incidence?

Answer explanation

The extent to which the tax burden is borne by the producer or the consumer or both

What is maximum price?

Answer explanation

A price that is fixed; the market price must not exceed this price; sometimes called a price ceiling

What is buffer stock scheme?

Answer explanation

A type of commodity agreement designed to limit price fluctuations

What does the term 'incidence of an indirect tax' refer to?

• The method of collecting the tax

• The types of goods that are taxed

• The total revenue generated from the tax

• The extent to which the tax burden is borne by producers and consumers

The government wants to impose a maximum on the price of rice. There are three possible ways in which this can be achieved, either individually or in combination. These are:

1 to give a subsidy to rice producers

2 to provide more information on the health benefits of consuming more rice and less meat

3 to ration the amount of rice that each person is allowed.

Which is the best way for the government to impose a maximum price?

• 1

• 3

• 1 and 3 combined

• 2 and 3 combined

A new subsidy is paid to farmers who grow corn (maize).

Which of these is the most likely consequence?

• More corn is produced at a higher price to consumers.

• More corn is produced at a lower price to consumers.

• More corn is produced at a price to consumers that is determined by market demand and supply.

• There will be a decrease in the price of corn oil for

  consumers.

Suppose the government uses a buffer stock scheme to reduce the market price of wheat.

Which is the best way in which this can be achieved?

• by increasing the supply of wheat in the market

• by buying supplies of wheat in the market

• by providing a subsidy for farmers to produce more

  wheat

• by a campaign to get consumers to buy less wheat

What is one potential negative effect of minimum price controls?

• Higher consumer satisfaction

• Reduction in indirect taxation

• Development of an informal market

• Increased efficiency among producers

What is a buffer stock scheme designed to do?

• Smooth price rises and falls in agricultural markets

• Increase the efficiency of all producers

• Eliminate all price controls in the market

• Set maximum prices for all consumer goods