Ad valorem tax
Definition. An ad valorem tax is an indirect tax levied as a percentage of the price or value of a good or service rather than a fixed sum per unit. Because the tax rises with price, it pivots the supply curve, widening the vertical gap between old and new supply as price increases.
The Goods and Services Tax in Singapore is an example. It contrasts with a specific tax, which adds a constant amount per unit and shifts supply by a parallel distance.
This term belongs to Indirect Taxes and Subsidies in A Level Economics. Read the full chapter for the diagrams, worked examples and exam technique.
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