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Cards (62)
What are indirect taxes used for in microeconomics?
To raise
government revenue
and solve
market failure
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What are the two general types of taxes mentioned?
Indirect taxes
and direct taxes
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What is a direct tax?
Taxes on
income
that can't be
transferred
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How are indirect taxes defined?
Expenditure taxes
added when goods are sold
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What is a specific indirect tax?
A tax
per unit
of a good sold
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How does a specific indirect tax affect the supply curve?
It shifts the supply curve parallel
upwards
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What is an ad valorem tax?
A tax as a percentage of the price
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How does an ad valorem tax shift the supply curve?
It pivots the supply curve
upwards
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What happens to government revenue with a high price under an ad valorem tax?
It generates a
high amount
of revenue
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What is the impact of an indirect tax on market equilibrium?
It increases
price
and decreases
quantity
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How is government revenue calculated after an indirect tax is implemented?
Tax
per unit
multiplied by quantity sold
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What does the consumer burden represent in the context of indirect taxes?
The difference in
price
due to the tax
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What is the producer burden in relation to indirect taxes?
The remaining amount after consumer burden is deducted
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How is producer revenue calculated before an indirect tax?
Price
times
quantity sold
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What happens to producer revenue after an indirect tax is implemented?
It decreases due to
tax deductions
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What is a deadweight welfare loss in the context of indirect taxes?
A loss of
economic efficiency
due to
reduced quantity
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How do indirect taxes affect consumers?
They raise
prices
and lower
consumer surplus
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Why are indirect taxes considered regressive?
They take a larger proportion from
low-income
households
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What is the impact of inelastic demand on indirect taxes?
The impact on
consumers
will be greater
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How do indirect taxes affect producers and workers?
They lower producer
revenue
and may cause
job losses
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What is the government's perspective on indirect taxes?
They raise
revenue
and address
market failures
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What unintended consequences can arise from indirect taxes?
Creation of
black markets
and harm to consumers
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What are the key impacts of an indirect tax based on elasticity?
Consumer burdens, producer burdens, and
government revenue
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What is a deadweight loss in relation to indirect taxes?
A loss of
economic efficiency
due to reduced market activity
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What are the key impacts of indirect taxes on the market?
Increase in
production costs
Shift of
supply curve
to the left
Higher prices for consumers
Decrease in quantity sold
Reduction in consumer surplus
Creation of
deadweight loss
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What are the effects of indirect taxes on different stakeholders?
Consumers
: Higher prices, lower surplus, regressive impact
Producers
: Lower
revenue
, potential
job losses
Government
: Increased revenue, market failure solutions,
unintended consequences
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What happens to consumer and producer burdens when demand is price elastic?
Consumer burden is
lower
, producer burden is
higher
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How do you calculate government revenue from an indirect tax?
Tax
per unit
multiplied by quantity sold
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What is the relationship between quantity sold and government revenue when demand is price elastic?
Lower quantity leads to
lower
government revenue
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What occurs when demand is perfectly price elastic?
Consumer burden
is zero,
producers
bear all burden
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What happens to consumer and producer burdens when demand is price inelastic?
Consumer burden
is higher, producer burden is lower
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How does the quantity sold affect government revenue when demand is price inelastic?
Higher
quantity leads to
higher
government revenue
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What is the purpose of indirect taxation in the context of market failure?
To solve market failure by
increasing costs
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How does indirect taxation affect firms' costs of production?
It
increases
firms'
costs
of
production
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What is the consumer burden when demand is perfectly price inelastic?
Consumer burden equals the
indirect tax value
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What type of market failure is addressed by indirect taxation?
Overconsumption
, not overproduction
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What is a negative externality?
Costs imposed on
third parties
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What happens to the marginal private cost (MPC) curve when an indirect tax is imposed?
The MPC curve shifts to the
left
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What happens to producer burden when supply is price elastic?
Producer burden is lower,
consumer burden
is higher
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What does a perfect indirect tax do to the MPC curve?
It aligns MPC with
marginal social cost
(
MSC
)
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See all 62 cards
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