ECONOMIC CH13

What are ad valorem taxes based on?

• A proportion or percentage of the price charged

• The total income of the consumer

• A fixed amount per unit purchased

• The quantity of goods produced

What is incidence?

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Answer explanation

The extent to which the tax burden is borne by the producer or the consumer or both

What is maximum price?

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Answer explanation

A price that is fixed; the market price must not exceed this price; sometimes called a price ceiling

What is buffer stock scheme?

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Answer explanation

A type of commodity agreement designed to limit price fluctuations

What does the term 'incidence of an indirect tax' refer to?

• The method of collecting the tax

• The types of goods that are taxed

• The total revenue generated from the tax

• The extent to which the tax burden is borne by producers and consumers

The government wants to impose a maximum on the price of rice. There are three possible ways in which this can be achieved, either individually or in combination. These are:

1 to give a subsidy to rice producers

2 to provide more information on the health benefits of consuming more rice and less meat

3 to ration the amount of rice that each person is allowed.

Which is the best way for the government to impose a maximum price?

• 1

• 3

• 1 and 3 combined

• 2 and 3 combined

A new subsidy is paid to farmers who grow corn (maize).

Which of these is the most likely consequence?

• More corn is produced at a higher price to consumers.

• More corn is produced at a lower price to consumers.

• More corn is produced at a price to consumers that is determined by market demand and supply.

• There will be a decrease in the price of corn oil for

  consumers.

Suppose the government uses a buffer stock scheme to reduce the market price of wheat.

Which is the best way in which this can be achieved?

• by increasing the supply of wheat in the market

• by buying supplies of wheat in the market

• by providing a subsidy for farmers to produce more

  wheat

• by a campaign to get consumers to buy less wheat

What is one potential negative effect of minimum price controls?

• Higher consumer satisfaction

• Reduction in indirect taxation

• Development of an informal market

• Increased efficiency among producers

What is a buffer stock scheme designed to do?

• Smooth price rises and falls in agricultural markets

• Increase the efficiency of all producers

• Eliminate all price controls in the market

• Set maximum prices for all consumer goods