Indirect and direct taxes Questions And Verified Correct Answers.
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Course
TAX.
Institution
TAX.
Direct tax - correct answer Tax that everyone has to pay, it is taken directly out of your salary.
Indirect tax - correct answer An indirect tax is a tax imposed by the government that increases the supply costs faced by p...
Direct tax - correct answer Tax that everyone has to pay, it is taken directly out of
your salary.
Indirect tax - correct answer An indirect tax is a tax imposed by the government
that increases the supply costs faced by producers.
-The amount of the tax is always shown by the vertical distance between the two supply curves.
Result of indirect tax - correct answer -Less can be supplied at each price level
-The result is an increase in the market price and a contraction in demand to a new equilibrium output.
Types of tax - correct answer -A specific tax is a set tax per unit e.g. a £5 tax per unit
sold.
-An ad valorem tax is a percentage tax e.g. 20% on the unit price.
Examples of indirect tax - correct answer -The main UK indirect tax is VAT -
generating £110bn annual tax
-Fuel duties generate £27bn and tobacco taxes £10bn each year
-Taxes such as air passenger duty bring in £3bn of tax each year
Indirect tax when PED=0 and PES= infinity - correct answer Graph
Indirect taxes with a coefficient of PED >1 - correct answer If the coefficient of price
elasticity of demand >1, then most of the burden of an indirect tax will be absorbed by the supplier
Indirect taxes with a coefficient of PED <1 - correct answer If the co-efficient of price
elasticity of demand <1, most of an indirect tax can be passed on to the final consumer
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