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Indirect tax
tax on firms by the government on the sale/production of specific goods/services
Subsidies
a grant/sum of money paid by the government to firms to produce a certain good/service
indirect tax effect on graph
supply left
shortage
price rises
contraction along the demand curve
subsidy effect on graph
supply right
surplus
price falls
extension along the demand curve
incidence of indirect tax on consumers and producers
impact of subsidy on producers and consumers
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.