| What are the 2 Types of Indirect Taxes? | -Specific Taxes: Fixed Amount that will be Charged per Unit of a Good. Doesn't care for the Price of the Good.
-Ad Valorem Taxes: Charged as a Proportion [%] of the Price of a Good. So a 20% Tax on the Price of a God means, if its $10 Product, its $2 Tax, and if its $100, it is now $20 |
| How does a Specific Tax affect the Supply Curve? | -Specific Taxes will make a Shift in the Supply Curve that goes to the Left that is Parallel to the Original Curve. This is because a Fixed Amount is Given regardless the Price |
| How does an Ad Valorem Tax affect the Supply Curve? | -Ad Valorem leads to a Shift in the Supply Curve that goes to the Left, that IS NOT Parallel to the Original Curve. This is because there is a Different amount given if the Price is Low or High |
| What is the Purpose of Governments using Taxation [On Goods] | -This is to Cover the Cost of the Externalities it makes [Demerit Goods]
-Taxes will make Revenue for the Government that can Offset the Consequences of the Externalities. This can also lead to the Disincentive of Production of Demerit Goods |
| Make an Example with the Land Fill Tax. What does it Reflect, Encourage, but Failed in? | -Local Authorities or Firms that Dump Waste at Landfill Sites are Charged a Environmental Tax, which Reflects the Full Social Costs of using Landfill. [Pollution...]
-This should Encourage the Usage of Recycling, which therefore Reduced the Negative Externalities that Landfill does
-But this has led to Fly-Tipping being used more [Dumping Waste Illegally on Land that shouldn't have Waste Deposited on it] |
| How can you show the Total Tax in a Supply Demand Diagram - Use an Ad valorem Tax to Explain | -The Supply Curve will firstly Shift to the Left that is Non-Parallel to the OG Supply Curve [S1]
-Total Tax can be Deduced from these Points. The New Equilibrium Point, The Equilibrium Price, A Point that is at the Same Quantity Demanded [Supplied] as the New Equilibrium Point, but is Located on the Old Supply Curve, and Finally the New Price for the Last Point just Mentioned. That should give the Total Tax |
| How can, using again a Supply Demand Diagram, split the Total Tax to what the Consumer has to Pay [For the Tax] and what the Producer has to Pay | -Total Tax will be the Addition of what Both Economic Agents have to Pay. The Consumer Share will be the New Equilibrium Price and the Equilibrium Point [After the Supply Curve has Shifted] but will End at where Quantity Demanded / Supplied is Same as the Equilibrium Demanded, but at the Price Level of where the Old Equilibrium Point is. The Producer Share will go from That last point mentioned, its Price Level, The Point [Same Qd] that lies on the Old Supply Curve, and that Respect Price Level. |
| What are the Advantages of Indirect Taxes? | -Cost of Negative Externalities is Taking into Account in the Price of the Good. This can Reduce Demand, and therefore the Level of Production - Reducing the Negative Externalities therefore
-Even if Demand isn't Changed, Revenue is still Generated to the Government from the Tax, meaning the Government can Offset it through other Means - Fund other Projects |
| What are the Disadvantages of Indirect Taxes? | -Hard to put an actual Money Value onto the Negative Externalities - Value Judgments
-If Demand is Price Inelastic, then Demand will not be Reduced by the Extra Cost of the Tax
-Indirect Taxation will, usually, Increase the Cost of Production which will Reduce a Product's International Competitiveness
-Firms may just Move Away, and Sell Abroad to Avoid the Indirect Taxation - This may do more Damage [Employment?]
-Money raised via Taxation may not be Spent on Reducing the Effects of Their Externalities |
