‘ tesa Y DIPLOMA IN ESTATE AGENCY COURSE (PART |) SUBJECT: PRINCIPLES OF ECONOMICS: Past Year Question & Answers 2001 - 2012 Topic 18 ROLE OF GOVERNMENT ~ TAX & GOVT EXPEND!TUREHRNCPLES OFECONOMICS _TOMCIB_RoLE OF GovERNNENT-TAX& GOVT ExrENOIURE RoE Question 86) (6)] Explain the followings: (20 marks) ‘¢) Direct Tox Diect tox s the burden that cannot be shifted fo the hid pexty. te based on income and weal, Progresive and compusory in nate, Direct Taxes ©. Personal income tax bb. Taxes on corporate income . Texes on capital gcins 4. Toxes on Wealth ») Indirect Tax Inclrect Taxis the burden can be shifted tothe thc party. Is based on expendiize and consumption. Regressive in nature andoptiondl Indirect Toxes (0. General expenditure taxes i. Excite duties 6, Cuslome duties RESEES ©) Explain the sources of the Government revenue (marks) 1) Direct Tox )ncirect tox 1) Treasury bls, Bonds and loons 1») Income from investment MY) Grontsin oid 2008s Question 76) | i I i ©) Explain the various purpose of taxation (Bmarks) I) To collect revenve for the Government 5 Toredistibute income; fom the rich fo poor i) To combat unhealthy economic condition —infation IM) To correct adverse result of balance of payment ¥) To protect localintant industies W) Toteallocate the resource ‘Collated &Reseorched for Ramacalt Academy rage FarsHINCPLS OF ECONOMICS TOME 18_ROLE OF GOVERNMENT TAX 4 GOVT ExPENOTNE 2008 = Question? (6) &(b) | Es ©) Give the defnilion of Direct Tax and Indirect Tax. (4 morks) Direct tax she burden that cannot be sifted fo the thre port. is Based on income and wealth. Progressivecnd compulsory in nature. Direct Taxes ®. Personal incom 1 Taxes en corporate income 9. Taxes en capital gains fy Taxes on Weatth Indtect Tex is the burden can be shied to the thd party. it based on ‘expenditure and consumption. Regressive in nature and optional Inirect Towes ‘d. General expenctture faxes 8 Excte duties F Customs outes ») Explain the advantage and dlsadvantage of both taxes above. (14 marks) Diee! Tax-Acvontoge |} Ihcan 20 rated or owed by the Government in response to the need ji) Theincidence of the tex con be calculated Ih con educe income inequalty IM) Used os stabitzer during unheaithy economic conaiion ~infation and Dec! Tox - Diadvontage ’) One ime lage payment inconvenience i) Rechee the sovings of individuals Ji) Dicourege individual, eter tess NM) May lead fo tax evasion problem Incitect tox Advantage |] Used stobileer suing unneatiny economic concstion B) Tax avasion is ficut os is part ofthe price’ consumption §) _Souce of revenve tor Government ‘Colaled Researched for Ramscoll Academy SSCS TTSMRINCINES OF ECONOMICS TOME 18_ROLEOF GOVERNMENT TAX. GOVT XFENDIURE Incirect Tox Diadvanlage J) ffect tie ecunumnic wens bing Uf pike level il) infationay effects b) Define fax and when do consumers face a higher tax burden than producers. (10 Marks) four Exteme Cases of Elasticity. There are four extreme o* limiting cases— not generally seen in the recl world—ihat mustrate the concent of elasticity and is impications Ierfecty lotic Supply fo products easly reproduced or obicined ot the some ost per uni, no mater how many units cre sought, then the supply curve Is hofzontal ond the nel.of-tax prices fixed at that marginal cost. F the buyes in the town ore wiling 10 pay the market price, they can get @ ‘tually unimited supply [or at least all they con hold). they ore not iin pay that price. they will get none,] Any tax fs botne by the consumer. Output or Galabitly wil fll demand & prce-sensiive, Tammy + Perfectly Elastic Demand, demand s perfectly elstic. any ke inthe prices would couse a collapse in consumption. The demand cue is horizontal, and the market price hed. Any foximposed wil smpiylower the net-oftax pice tothe producer, who must bear the whole tax. Output wil fll supply is price-sensitive Coated & Researched or Ramscol Academy ————~SSCSCSCS~S~S~S~S~*«S RTSINCHES OF ECONOMIES __TONC 18 _ROLE OF GovERWENT TAK GOVT ExrENOMTURE PRICE PERFECTLY ELASTIC DEMAND ai ao _QuanTy + Perfectly inelastic Supply # supply is pertecty inelastic, the same quantity of product must be offered regardless of the price. (Example: perishable seowbenes ot o farmer’ market late in the doy.) The supply cuve is vetica The pice is fixed by demand [what consumers are wiling 10 pay). Any tox imposed wil result in lower net-oFtax price to the sels, who must becr the tox, Output Is unchanged. (The stawberies ore a shottvun excmple. Repeated inabity 10 zal th fut will eau in less being grown nex! season.) price — PERFECTLY INELASTIC SUPPLY surety a ‘auAMtITY + Perfect inelastic Demand. I demand is completely insensive to price, people inset on the same quantily of output regardless of whet must Be pad, ‘Calaied' ResearchedtertamicoH Academy ————~S~SC~*~*~*~*«S TSPRNCIPLS OF ECONOMICS TONE 18 _ROLE OF GOVERNMENT TAX GOVT EXPENDITURE The demond cure Is vertical, and ony tax wil be bore by the consumes. Cutput sunchanged. a PERFECTLY INELASTIC DEMAND GRITTY Coleied& Researched orRamicoll Academy ——~—~S~S*~*~S*~S*« gS