1.2.9 Indirect taxes and subsidies

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7 Terms

1
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Indirect tax

tax on firms by the government on the sale/production of specific goods/services

2
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Subsidies

a grant/sum of money paid by the government to firms to produce a certain good/service

3
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indirect tax effect on graph

supply left

shortage

price rises

contraction along the demand curve

4
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subsidy effect on graph

supply right

surplus

price falls

extension along the demand curve

5
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incidence of indirect tax on consumers and producers

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6
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impact of subsidy on producers and consumers

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7
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Ad - Valorem tax

An ad valorem tax is expressed as a percentage. For example, VAT is charged at a rate of 20% in the UK.