Economics: Government Intervention Indirect Taxes & Subsidies

Indirect Taxes

An indirect tax is one imposed on expenditure, that which you buy, The tax revenue then goes to the government .

The type of good/ service taxed however; will dictate how much revenue is collected and who overall, is affected by the tax. The burden could fall more on the consumer or more on the producer depending on the situation.

Specific Tax

Per unit tax on a product

Sin Tax

Tax made to discourage the consumption of certain products

Price Settlement

Producers naturally raise prices to P2 → surplus occurs → price eventually settles at P1

Consumer Tax Burden

P₁ → P₂

Percentage Tax

percentage charged on the price of the goods or services

Substitutes

alternatives to

Legislation

the drafting, and enactment of laws by a legislative body

Regulation

Monitoring and controlling activity of firms

How does graph change with tax

Supply curve shifts left

Subsidies

amounts of money paid by the government to a firm per unit of output

Primary Commodity

raw materials such as agricultural products, energy resources, and metals/minerals, that are essential inputs for all industries and form the foundation of global trade

Subsidy effects

• Increase in government spending

• Increase in Consumer Surplus

• Increase in producer surplus

• Welfare Loss (Opportunity Cost)

Direct Provision

government directly provides or supplies goods and services deemed to be in the best interest of the public

Command and Control Regulations and Legeslations

Direct rules or laws governing an activity or industry