1.2.9 Indirect taxes and Subsidies

Indirect tax

A tax which is levied on the purchase of goods and services

Direct tax

A tax paid directly by an individual or organisation

Ad valorem tax

Is charged as a % of the price of a good

Specific tax

Is charged as a fixed amount per unit per good

Specific tax diagram

Ad valorem tax diagram

Incidence of tax

The tax burden on the taxpayer

If demand curve is perfectly elastic or supply curve is perfectly inelastic

All tax will be payed by supplier

If demand curve is perfectly inelastic or supply curve is perfectly elastic

All the tax will be passed onto the consumer

Subsidy

A grant given by the government

Subsidy diagram