Define an Excise Tax and Give Three Examples

question 27

Essay

Define an excise tax and give three examples. Explain the relationship between a tariff and an excise tax. Use supply and demand analysis to explain why the equilibrium price of apples will rise and the equilibrium quantity will fall if an excise tax is levied on apples. Explain why the price of apples will not rise by the full amount of the tax.

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Definitions:

Annual Coupon

The annual coupon is the interest payment that a bond issuer makes to bondholders each year, expressed as a percentage of the bond's face value.

Price

The amount of money required to purchase a good, service, or asset.

Maturity

The time at which a financial instrument becomes due for payment.

Liquidity Premium (LP)

Additional return demanded by investors for holding securities with lower liquidity, compensating for the potential cost and difficulties in trading.