Google
Tuesday 
October 26, 2021 

AmosWEB means Economics with a Touch of Whimsy!

AmosWEBWEB*pediaGLOSS*aramaECON*worldCLASS*portalQUIZ*tasticPED GuideXtra CrediteTutorA*PLS
RATIONAL IGNORANCE: The decision not to become informed about something because the cost of doing it is more than the expected benefit. In that information is costly, there's always some limit to how much anyone can know. The idea of rational ignorance, while popping up on a daily basis for most of us, is quite important come election time. Many voters decided, logically so, that it's not really worth their efforts to get ALL of the details on every candidate and issue on the ballot.

Visit the GLOSS*arama


AD VALOREM TAX:

A tax specified as a percentage of the price or value of a good, service, asset, or other activity. Ad valorem taxes tend to be broad based, imposed on activities such as income and retail sales. In fact, the two most important ad valorem taxes are income taxes and sales taxes. People pay a percentage of their incomes in income taxes or a percentage or the value of their purchases in sales taxes, regardless of the amount of time spent working or the quantities of goods purchases. An alternative is a per unit tax, with is a tax specified as a percentage of the physical quantity of a good.
An ad valorem tax is a tax in which the tax base is specified as a dollar value rather than a physical quantity. If, for example, the a city government places an ad valorem tax of 10 percent on retail sales (a sales tax), then buyers and/or sellers are responsible for paying an extra 10 cents on each dollar of commondities sold. Not only will the the total tax depend on the quantity sold, but more also importantly it depends on the price.

If you buy $100 worth of food at your local discount grocery store, then the city government collects a total tax of $10 (10 percent x $100). If your close friends buys exactly the same items from a high end food boutique, paying $150, then the then the city government collects a total tax of $15 (10 per cent x $150). It makes a difference that you paid lower prices than your friend for the same items.

This type of tax can be illustrated using the following tax calculation equation. The total tax collected is the product of the tax rate and the tax base. An ad valorem tax exists if the tax base is specified as a dollar. In the previous example, the tax rate is the ad valorem tax of 10 percent of sales and the tax base is the value of commodities sold.

tax=tax basextax rate
Ad valorem taxes tend to be broadbased, such as sales or income, in which quantity bought, sold, or exchanged is difficult to track or aggregate. Collecting taxes on the various quantities of different retail goods exchanged would be exceedingly difficult -- 5 cents on each bottle of soda pop, 2 cents on each candy bar, 15 cents on each gallon of milk, $1 on each T-bone steak, etc. An ad valorem sales tax is easier to administer. Calculate the total sales value, then collect a percentage of this value.

Ad valorem taxes are commonly the preferred method of collecting the revenue used by governments to provide public goods and generally finance government operations (the revenue effect). When broadbased, they tend to have less of an allocation effect.

An alternative type of tax is a per unit tax, in which the tax base is specified as a physical quantity. A per unit tax, in contrast to an ad valorem tax, does not depend on price. A higher price does not means a higher tax.

<= ACCOUNTING PROFITADVERSE SELECTION =>


Recommended Citation:

AD VALOREM TAX, AmosWEB Encyclonomic WEB*pedia, http://www.AmosWEB.com, AmosWEB LLC, 2000-2021. [Accessed: October 26, 2021].


Check Out These Related Terms...

     | taxation principles | per unit tax | tax effects | revenue effect | allocation effect | tax equity | ability-to-pay principle | benefit principle | horizontal equity | vertical equity | tax proportionality | proportional tax | progressive tax | regressive tax | tax efficiency | tax incidence | tax wedge | deadweight loss |


Or For A Little Background...

     | taxes | government functions | efficiency | equity | distribution standards | public finance | allocation |


And For Further Study...

     | public choice | good types | market failures | public goods: demand | public goods: efficiency | tax multiplier | personal tax and nontax payments | transfer payments |


Search Again?

Back to the WEB*pedia


APLS

GREEN LOGIGUIN
[What's This?]

Today, you are likely to spend a great deal of time lost in your local discount super center seeking to buy either a dozen high trajectory optic orange golf balls or a large red and white striped beach towel. Be on the lookout for a thesaurus filled with typos.
Your Complete Scope

This isn't me! What am I?

Potato chips were invented in 1853 by a irritated chef repeatedly seeking to appease the hard to please Cornelius Vanderbilt who demanded french fried potatoes that were thinner and crisper than normal.
"Never let the fear of striking out get in your way. "

-- Babe Ruth, baseball player

PPC
Production Possibilities Curve
A PEDestrian's Guide
Xtra Credit
Tell us what you think about AmosWEB. Like what you see? Have suggestions for improvements? Let us know. Click the User Feedback link.

User Feedback



| AmosWEB | WEB*pedia | GLOSS*arama | ECON*world | CLASS*portal | QUIZ*tastic | PED Guide | Xtra Credit | eTutor | A*PLS |
| About Us | Terms of Use | Privacy Statement |

Thanks for visiting AmosWEB
Copyright ©2000-2021 AmosWEB*LLC
Send comments or questions to: WebMaster