An indirect tax is an amount of money that the government charges the supplier each time she/he sells the taxed product. The amount could be a flat amount or a percentage of the price of the product. The supplier needs to charge all, or some of this tax, to the consumer to seek recompense (otherwise they will make a loss). An indirect tax makes a product more expensive. At the more expensive price, consumers will demand a lower quantity compared with the price without the tax. This will discourage buying the product.
A subsidy is a payment that the government gives to the supplier towards the cost of producing a product. Often, this product is good for society/the environment/health/education/helps us all to do our work more efficiently (and GDP increases, yay). The producer can meet some (though rarely all) of the production costs by using the subsidy and so they will be able to offer the product at a cheaper price. At the lower price, a larger quantity will be demanded by consumers. This is often the whole point of a government subsidy: it encourages the buying of "good" goods. Examples are education (100% subsidy), solar power (40% subsidy) and electric cars (£5,000 subsidy by the current Conservative Government).
This explanation will lift the cloud!
No comments:
Post a Comment