1.2.9 Indirect taxes and subsidies

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

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

What tax structure places a higher percentage rate of taxation on high-income earners than on low-income earners?

• Proportional tax

• Progressive tax

• Regressive tax

A £300 sale was made by a trader inclusive of 20% VAT. What was the net amount?

• £360

• £250

• £240

• £280

The diagram shows demand and supply curves for a product at its equilibrium price P.

How would the introduction of a subsidy be shown?

• Demand would shift to D1.

• Demand would shift to D2.

• Supply would shift to S1.

• Supply would shift to S2.

The diagram shows that when a tax of $2 on a good raises the supply curve from S1 to S2, the price to the consumer rises from $4 to $5.

What is the total tax yield to the government?

• $75

• $150

• $200

• $375

The diagram shows a tax on a good resulting in a shift in supply from S1 to S2.

The price to the consumer rises from $4 to $5. What is the amount of tax?

• $2

• $3

• $4

• $5

Which of the following correctly identifies the areas of consumer surplus (CS), producer surplus (PS), deadweight loss (DWL) and tax revenue (tax) in this market after the tax?

• CS = R; PS = UV

  DWL = T; tax = S

• CS = R; PS = V

  DWL = 0; tax = SU

• CS = RST; PS = UWV

  DWL = 0; tax = 0

• CS = RST; PS = UWV

  DWL = TW; tax = 0

• CS = R; PS = V

  DWL = TW; tax = SU

Which of the letters in this graph represents the surplus that is lost to sellers who are no longer able to participate in this market?

• R

• T

• S

• U

• W

In a country where the demand for petrol (gas) is price-inelastic, the incidence of any increase in petrol tax will be mainly on

• the company that refines the oil.

• the motorist who buys the petrol.

• the petrol station that sells the petrol.

• the wholesale company that stores the petrol.