Indirect taxes, subsidies & price controls Flashcards Preview

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Flashcards in Indirect taxes, subsidies & price controls Deck (17)
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1
Q

Which are the two types of taxes?

A
  • Ad valorem

- Fixed

2
Q

What happens with the tax burden if PED = PES?

A

Tax burden is shared equally

3
Q

What happens with the tax burden if PED > PES?

A

Tax burden is on producers

4
Q

What happens with the tax burden if PED

A

Tax burden is on consumers

5
Q

What is a social surplus?

A

Get more than what you wanted or expected

6
Q

What are indirect taxes?

A

Taxes that do not go directly to the government

7
Q

What is the formula for consumers’ tax burden?

A

(Pe2 - Pe1)(Qe2)

8
Q

What is the formula for producer’s tax burden?

A

(Pe1 - C)(Qe2)

9
Q

What are subsidies?

A

Financial aid or support extended to an economic sector, with the aim of promoting economic & social policy

10
Q

What are some reasons for the government to provide subsidies?

A
  • increase production to increase demand
  • promote competition in the market
  • essential goods
11
Q

When are price controls used?

A

When the free market does not have the best outcome

12
Q

What is a tax?

A

Amount of money charged by the government for a transaction

13
Q

What is a price ceiling (maximum price) used for?

A

To protect consumers from rapid price increases & price gouging

14
Q

What do price ceilings generate?

A

Shortage

15
Q

What does the government do to calm the shortage?

A
  • lottery
  • black market
  • fist come, first served
16
Q

What is a price floor (minimum price) used for?

A

To raise income for producers & protect workers with a minimum wage

17
Q

How are price floors put into action?

A

With taxes to the industry to shift supply