crease firms' costs of production at every price level.","correct":true,"explanation":"An indirect tax is charged on production or sales, raising firms’ costs. This shifts the supply curve because firms are willing to supply less at every possible price."},{"text":"Indirect taxes reduce consumers' incomes at every price level.","correct":false,"explanation":"Taxes may reduce consumers’ disposable income, but that affects demand rather than supply. The diagram shows a supply shift because the tax directly raises firms’ production costs."},{"text":"Indirect taxes increase consumers' willingness to pay at every price level.","correct":false,"explanation":"A tax does not make consumers value the product more. The supply curve shifts because the tax raises firms’ costs, reducing the quantity supplied at each price."},{"text":"Indirect taxes reduce firms' costs of production at every price level.","correct":false,"explanation":"An indirect tax adds to firms’ costs rather than reducing them. Higher costs shift supply left or upwards, whereas lower costs would shift supply right or downwards."}]},{"id":"74efc6b6-3a9e-4c4f-84fd-327eb1f5afc5","cardType":"basic","front":"What does a price wedge represent in a supply and demand diagram?","back":"The gap between the price paid by consumers ($P_c$) and the net price received by producers ($P_p$).","points":1,"mcqOptions":[{"text":"The gap between the price paid by consumers ($P_c$) and the net price received by producers ($P_p$).","correct":true,"explanation":"The price wedge is the difference between the price consumers pay and the net amount producers receive. An indirect tax creates this gap because the government collects the difference."},{"text":"The gap between the quantity demanded by consumers ($Q_d$) and the quantity supplied by producers ($Q_s$).","correct":false,"explanation":"This describes a disequilibrium gap between quantities, not a price wedge. The price wedge is the vertical difference between the consumer price and the producer’s net price."},{"text":"The gap between the price received by consumers ($P_c$) and the gross price paid by producers ($P_p$).","correct":false,"explanation":"Consumers pay the market price, while producers receive the net price after tax. Reversing these roles misinterprets the diagram; the wedge is the gap between consumer and producer prices."},{"text":"The gap between the equilibrium price before tax ($P_c$) and the equilibrium price after tax ($P_p$).","correct":false,"explanation":"The wedge is not simply the change in the market price caused by taxation. It is the difference between what consumers pay and what producers keep after the tax."}]}]}],"examCountdown":{"examDate":"2027-05-10","paperLabel":"Paper 1"},"heading":"1.2.9 Indirect taxes and subsidies","title":"Indirect taxes and subsidies Flashcards","topicSidebar":"$L41"}]}],"topicId":"75cc7426-6f69-5e6a-8807-e40e55d702f7","walled":"$L42"}],"$L43"]

1.2.9 Indirect taxes and subsidies

1.2.9 Indirect taxes and subsidies Flashcards

1.2.9 Indirect taxes and subsidies

1.2.9 Indirect taxes and subsidies Flashcards