ECONOMICS
MARKET FAILURES
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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tax per unit
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tax that changes with the price of the good
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tax on profits
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tax on income
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Detailed explanation-1: -An ad valorem tax (Latin for “according to value") is a tax whose amount is based on the value of a transaction or of property. It is typically imposed at the time of a transaction, as in the case of a sales tax or value-added tax (VAT).
Detailed explanation-2: -Ad valorem is a Latin phrase that translates to “according to the value.” The essential characteristic of ad valorem tax is that it is proportional to the value of the underlying asset, unlike a specific tax, where the tax amount remains constant, irrespective of the underlying asset’s value.
Detailed explanation-3: -An ad valorem tax is a tax that is based on the assessed value of a property, product, or service. The most common ad valorem tax examples include property taxes on real estate, sales tax on consumer goods, and VAT on the value added to a final product or service.
Detailed explanation-4: -UPSC Mains Notes: An ad valorem tax is a tax based on the assessed value of an item, such as real estate or personal property. The most common ad valorem taxes are property taxes levied on real estate.
Detailed explanation-5: -As prices inflate, so will tax revenues, since most rates are ad valorem. An ad valorem tax is charged at the estimated value of the goods being taxed.