Answer to Question #314951 in Microeconomics for Pat

Question

1. “Since all taxation transfers income from the population to the states, it does not matter very much, if this transfer is through direct taxes on incomes, or indirectly by taxes on various goods and services.” Discuss
2. Discuss the need for, and problem associated with, the administration of subsidies .
3. Will inflation peter out?
4. Examine the major types unemployment and the need for such categorization.

Answer 1

Direct taxes are the mandatory non-refundable payments supposed to be payed by citizens and institutions to the government. They include income tax commonly known as pay as you earn(P.A.Y.E.), land rates among others.

Indirect taxes are payments made by consumers and are passed to them by sellers and made when purchasing a commodity.

All these payments lead to transferring of money from the public to the state accounts. As a result, the income made by individuals and businesses is reduced.

The money is then put together regardless of whether it was paid directly or indirectly and the total forms the government revenue. The revenue is used to service the country's budget.

Governments seek to implement subsidies to encourage production and consumption in specific industries.

Subsidies aid particular industries and therefore put the rest at a disadvantage. Subsidies result in market distortion affecting the market price and quantity.

Inflation will never peter out since it is part of the economic cycle.Efforts can be put into place to control it but not to completely avoid it.

Types of unemployment

Frictional

Cyclical

Seasonal

Structural