Level 4
Level 5

Indirect Taxes, Subsidies, Price Controls


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Indirect Tax
Taxed imposed on expenditure
Specific Tax
Fixed amount of tax
Percentage (Ad Valorem) Tax
Tax is a percentage of the selling price
Subsidy
Amount of money government pays a firm to increase output
Reasons for Subsidies
Lower the price of essential goods, Guarantee the supply of necessity products, enable producers to compete with overseas trade
Price Ceiling
Maximum price of a product
Price Floors
Minimum price of a product
Black Market
Illegal Market where the product is sold at a higher price than the price ceiling
Solutions for Price Ceiling
Offer firms subsidies, produce goods themselves, release stored stock
Reasons for Price Floors
Increase income for necessity product producers, protect workers
Solutions for Price Floors
Introduce Quotas, Positive Advertising, Tax Suppliers
Level 6