Indirect taxes, subsidies, and price controls

When the value of PED is greater than the value of PES for a product, then the burden of any tax imposed will be:

• greater on the consumers of the product than on the producers

• shared equally between the consumers and producers of the product

• greater on the producers of the product than on the consumers

• it is impossible to predict

The governments tend to place indirect taxes on products that have:

• inelastic demand

• elastic demand

• the demand does not matter in this case

Which answer is NOT a reason why governments may give subsidy for a product

• to enable producers to compete with overseas trade

• to guarantee the supply of products that the government thinks are necessary for the economy

• to lower the price of essential goods

• to decrease the supply of the product

Which statement about indirect taxes is true?

• both specific and percentage tax have exactly the same effect on supply curve of the product

• they are paid by the government

• their imposition decreases the costs of production

• they are not imposed upon expenditure

Maximum price controls are usually imposed on:

• normal goods

• luxurious goods

• inferior goods

• necessity or merit goods

What is not a consequence of minimum price controls?

• Workers gaining because more output is produced therefore there will be an increase in employment.

• Consumers losing as they pay a higher price for a lower quantity purchased

• The government loses as it must pay for the purchase of the surplus out of its budget

• Producers lose because they receive a lower price and sell a smaller quantity

Why governments impose indirect taxes?

• Indirect taxes provide governments with revenues needed to finance various government expenditures.

• Indirect taxes on goods that are harmful can be used to increase consumption of those goods

• Indirect taxes cannot be used to reduce the quantity of imports into a country

• Indirect taxes cannot be used to improve the allocation of resources when there are ne alive externalities

A subsidy is:

• an amount of money paid by the government to a firm, per unit of output

• money paid by the firm to the government

• an amount of money paid by the government to a firm

• an indirect tax

What is not considered to be an example of government intervention

• imposition of minimum wage

• subsidizing cotton production

• imposition of a percentage tax

• setting a maximum price for bread