4.1.8.9 Indirect tax NOTES

What is the primary purpose of indirect taxes?

• To generate tax revenue for the government

• To increase the income of households

• To increase corporation tax

• To reduce the number of goods and services

What type of tax is VAT considered?

• Specific tax

• Corporation tax

• Ad valorem tax

• Income tax

What happens to the supply curve when a specific unit tax is imposed?

• Shifts down

• Shifts up vertically by the amount of the tax

• Remains unchanged

• Shifts horizontally

What is the economic incidence of a tax?

• The legal requirement to pay the tax

• The extent to which someone is made worse off by the tax

• The amount of tax collected

• The process of implementing the tax

What determines the incidence of a tax when demand is elastic?

• The tax falls mainly on the consumer

• The tax is avoided entirely

• The tax falls mainly on the firm

• The tax is split evenly between the consumer and producer

What is a negative externality?

• A government subsidy on harmful products

• A harmful effect not reflected in the cost of a good

• A harmful effect that is paid for by the consumer

• A beneficial effect of a product

What is the purpose of taxes on negative externalities?

• To increase government revenue

• To simplify tax collection

• To decrease the production of goods

• To make consumers or producers pay the full social cost

According to Adam Smith, what should a good tax policy ensure?

• Taxes are convenient for the taxpayer

• Taxes are the same for every individual

• Taxes are arbitrary

• Taxes are high to discourage consumption

What is the Canon of Equity in taxation?

• Taxes should be certain and not arbitrary

• Taxes should be high on luxury goods

• Taxes should be levied according to the taxpayer's ability to pay

• Taxes should be collected after harvesting

What is a disadvantage of high specific taxes?

• They are regressive and impact low-income earners more

• They reduce consumption effectively

• They are easy to collect

• They encourage smuggling and illegal activities