Indirect Taxation and Government Intervention: Analyzing through Economic Models

The video explores indirect taxation as a form of government intervention to address market failures, particularly in cases of over-provision. It covers the types of fiscal interventions, including unit and ad valorem taxes, and their effects on supply and demand. The video also explains how indirect taxes can internalize externalities using supply-demand and marginal cost-benefit frameworks, with examples like congestion charging. The goal is to improve market welfare by aligning private decisions with social costs.

What is the primary economic reason for governments to impose indirect taxes?

• To rectify market failures

• To reduce inflation

• To increase government revenue

• To support local businesses

How do unit taxes differ from ad valorem taxes?

• Both are percentages of the product's value.

• Unit taxes are a fixed amount per unit, while ad valorem taxes are a percentage of the product's value.

• Both are fixed amounts per unit.

• Unit taxes are a percentage of the product's value, while ad valorem taxes are a fixed amount per unit.

What happens to the supply curve when an indirect tax is imposed?

• It shifts outwards

• It shifts inwards

• It becomes steeper

• It remains unchanged

Which factor determines how much of the tax burden is passed on to consumers?

• The supply curve

• The demand curve

• The production cost

• The price elasticity of demand

What is the effect of an indirect tax on a product with a negative externality?

• It increases the deadweight loss

• It has no effect on deadweight loss

• It increases the product's demand

• It reduces the deadweight loss

How can indirect taxes improve societal welfare?

• By increasing market prices

• By increasing production costs

• By eliminating deadweight loss

• By reducing government revenue

What is the purpose of congestion charging in cities?

• To decrease public transport usage

• To encourage car ownership

• To reduce traffic and emissions

• To increase traffic

What was the impact of congestion charging in London by 2006?

• Traffic levels increased by 16%

• Journey times increased by 30%

• Traffic levels decreased by 16%

• Journey times remained the same

What is meant by 'internalizing the externality'?

• Forcing private agents to ignore externalities

• Forcing private agents to consider externalities in their decisions

• Reducing the cost of externalities

• Eliminating all externalities

Which city introduced congestion charging in 2003?

• London

• Paris

• Tokyo

• New York