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Worksheets3.1.5.8 and 4.1.8.9 Taxation (correcting Market Failure)
Total questions: 13
Worksheet time: 7mins
Name
Class
Date
1.
Taxes imposed by a government on goods and services
a)
Indirect tax
b)
Direct tax
2.
What is the purpose of indirect tax?
a)
Answer 1-3
b)
Discourage consumption of ‘harmful’ products
c)
Encourage consumption of ‘good’ products
d)
Generate tax revenue for a government
3.
Which is an ad valorem tax?
a)
A percentage tax based on the value added by the producer
b)
A set amount of tax per unit sold
4.
Which has a non parallel shift?
a)
Ad valorem tax
b)
Specifc tax
5.
When demand is inelastic the tax burden is mainly on the...?
a)
Consumer
b)
Producer
c)
The government
6.
When demand is ........, the tax burden is mainly on the producer
a)
Elastic
b)
Inelastic
7.
A tax to correct market failure will be more successful when demand is..
a)
Elastic
b)
Inelastic
8.
A tax should be placed on the good equal to the external marginal cost.
a)
As consumers will end up paying the full MSC
b)
As consumers will end up paying the majority of the MSC
9.
Which is not an advantage of taxation?
a)
Increases international competitiveness
b)
Internalises the externality
c)
Creates incentives for firms in the LR to stop polluting.
d)
Raises gov tax revenue for the government
10.
Which is an advantage of indirect taxation?
a)
Tax can alter consumer behaviour in the long‐term.
b)
Difficult to measure the level of negative externality
c)
If demand is inelastic, higher taxes will not reduce demand
d)
Taxes will cause inequality
11.
Which are disadvantages of taxation?
a)
All three are disadvantages
b)
Possibility of evasion.
c)
High specific taxes will be regressive
d)
Cost of administration the cost of collecting taxes
12.
What makes a ‘good’ tax? - Adam Smith’s four canons of taxation
a)
Neither 1 nor 2
b)
Canon of Uncertainty
c)
Both 1 and 2
d)
Canon of Inequity
13.
Which is not one of Adam Smith’s four canons of taxation?
a)
Canon of Difficulty
b)
Canon of Economy
c)
Canon of Convenience or Ease
d)
Canon of Equity
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