a tax collected from the money spent on goods and services.
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Describe the effect of an indirect tax on supply and demand graph
An indirect tax is paid to government by the seller. Indirect tax will increase the production costs– shifting the S curve to the left. This will increase the price thus reducing the quantity
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Describe the impact of indirect tax on consumer
Consumers pay higher prices
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Describe the impact of indirect tax on producers
Producers’ costs rise, profits fall. Methods to protect profits and not loss control over costs
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Describe the impact of indirect tax on the government
Governments have more revenue to spend on public services & reduce market failure as goods were previously overconsumed
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What is mean by the incidence of indirect tax
The incidence of the tax shows much of the tax burden is paid for by the producer and consumer respectivel.y The producer will try to pass as much of the extra cost of the tax on to the consumer in the form of higher prices
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Describe how an inelastic D affects the incidence of indirect tax
The more inelastic the D curve, the more the consumer pays the tax in the form of higher prices
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Describe how an elastic D afects the incidence of direct tax
The more elasstic the D curve the more producers absorb the tax
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Describe how an inelastic S affects the incidence of indirect tax
.
9 of 20
Describe how an elastic S afects the incidence of direct tax
.
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Explain what is meant by a subsidy
A government grant to producers of a good or service (in some cases, to its consumer) to increase production (or consumption) by reducing production costs
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Describe the effect of a subsidy on supply and demand graph
The subsidy shifts the supply curve to the right to S2. This increases quantity and reduces the equilibrium price. Area of subsidy identified. Consumer pays P2, Producer receives A
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Describe the impact of a subsidy on consumer
Prices goes down, demand increases. Encourages firms into market.
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Describe the impact of a subsidy on producer
Raises producer surplus or profit. They can absord part of subsidy into profit
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Describe the impact of a subsidy on the government
opportunity cost of money spent
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Whar is meant by the area of a subsid
.
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Describe how an inelastic D curve affects he area of a subsidy
.
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Describe how an elastic D curve affects he area of a subsidy
Consumer benefits most from the subsidy (i.e. the price falls the most) when D is inelastic
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Describe how an inelastic S curve affects he area of a subsidy
.
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Describe how an elastic S curve affects he area of a subsidy
Consumer benefits most from the subsidy (i.e. the price falls the most) when S is elastic
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Other cards in this set
Card 2
Front
Describe the effect of an indirect tax on supply and demand graph
Back
An indirect tax is paid to government by the seller. Indirect tax will increase the production costs– shifting the S curve to the left. This will increase the price thus reducing the quantity
Card 3
Front
Describe the impact of indirect tax on consumer
Back
Card 4
Front
Describe the impact of indirect tax on producers
Back
Card 5
Front
Describe the impact of indirect tax on the government
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