Prospect college Ketu, Lagos

Learning through questioning

Which gate is known as the universal gate?

NAND

OR

AND

None

Answer. A. NAND gate.

This is so because using multiples of nand gates, any logical gate (AND, OR, NOT, NAND,NOR) can be created.

2. How does a logic gate function?

Using the flow of electric current

Spontaneously

By using energy from a chemical reaction

None of the above

Answer. A. Using the flow of electric current.

Logic gates work on the concept of getting two input electric current flows, comparing them and sending on another electrical output, depending on what it finds.

3. Which of the following is not a logic gate?

AND

OR

IF

NOT

Answer. C. IF is not a logic gate.

Different types of basic logic gates that are there include AND, OR, NOT. using these gates and making different combinations out of them, various other gates like NAND, NOR, etc are created but there is no such gate by the name of IF.

4. Which of the following are the arithmetic logic gates?

X-OR

X-NOR

Both

None

Answer. C. Both.

X-OR and X-NOR are termed as arithmetic gates because these gates are so connected that they carry out an arithmetic action and the output they give are the digits of the result.

5. What is the full form of DCDVS logic?

Differential cascade voltage switch

Differential cascade voltage static

Differential complex voltage switch

None

Answer. A. Differential cascade voltage switch is the expanded form of DCDVS logic.

6. Who was the inventor of the idea of logic gates?

George Boole

Bardeen

Claude Shannon

Kornard Zuse

Answer. A. George Boole, son of a shoemaker class family, born in Lincoln, England, was the inventor of the idea and concept of logic gates.

7. What is the one’s complement for the binary number 011001

000111

100110

111001

110001

Answer. B. 100110.

The one’s complement means that one has to swap all the 0’s and 1’s. So for the given number, swapping 0’s and 1’s would give the number designated as option b as the answer.

Multiple Choice Questions

Which gate is known as the universal gate?

NAND

OR

AND

None

Answer. A. NAND gate.

This is so because using multiples of nand gates, any logical gate (AND, OR, NOT, NAND,NOR) can be created.

2. How does a logic gate function?

Using the flow of electric current

Spontaneously

By using energy from a chemical reaction

None of the above

Answer. A. Using the flow of electric current.

Logic gates work on the concept of getting two input electric current flows, comparing them and sending on another electrical output, depending on what it finds.

3. Which of the following is not a logic gate?

AND

OR

IF

NOT

Answer. C. IF is not a logic gate.

Different types of basic logic gates that are there include AND, OR, NOT. using these gates and making different combinations out of them, various other gates like NAND, NOR, etc are created but there is no such gate by the name of IF.

4. Which of the following are the arithmetic logic gates?

X-OR

X-NOR

Both

None

Answer. C. Both.

X-OR and X-NOR are termed as arithmetic gates because these gates are so connected that they carry out an arithmetic action and the output they give are the digits of the result.

5. What is the full form of DCDVS logic?

Differential cascade voltage switch

Differential cascade voltage static

Differential complex voltage switch

None

Answer. A. Differential cascade voltage switch is the expanded form of DCDVS logic.

6. Who was the inventor of the idea of logic gates?

George Boole

Bardeen

Claude Shannon

Kornard Zuse

Answer. A. George Boole, son of a shoemaker class family, born in Lincoln, England, was the inventor of the idea and concept of logic gates.

7. What is the one’s complement for the binary number 011001

000111

100110

111001

110001

Answer. B. 100110.

The one’s complement means that one has to swap all the 0’s and 1’s. So for the given number, swapping 0’s and 1’s would give the number designated as option b as the answer.

3RD TERM ECONOMICS FOR SS2

WEEK 8: CAPITAL MARKET:- is a market for medium and long-term loans. The capital market serves the needs of industries and the commercial sectors. It comprises all institutions which are concerned with either the supply of or demand for long-term loans. The capital market provides a system by which money for investment is distributed to institutions which require funds for their further growth.

FUNCTIONS OF CAPITAL MARKET

1. It helps to provide long-term loans to investors
2. It helps to mobilize savings for investment purposes
3. It helps to enhance the growth and development of merchant banks
4. It gives opportunity to the general public to participate in the running of the economy

EVALUATION
1. What is capital market?
2. Outline three functions of capital market.

PRIMARY OR FIRST TIER SECURITIES MARKET

Primary Market– is a market where new securities (share, stock, bond, etc) are either bought or sold. That is a market where securities are traded for the first time. The operators in this market are the issuing houses such as stockbrokers, merchant banks, commercial banks, mortgage banks, insurance companies, the Central Bank of Nigeria and government. Investors pass on their resources to some of these institutions for investment purposes. Thus, these financial institutions effectively play the role of financial intermediation by mobilizing the savings of investors and investing them. The Securities and Exchange Commission sits at the apex of the primary market, regulating the issues of public companies and all private companies with foreign participation.

SECONDARY OR SECOND TIER SECURITIES MARKET

Secondary Market- is a market in which buying and selling of existing securities of companies take place. It came into existence to complement the efforts of the Stock Exchange Market towards funds mobilization for investment. Second tier securities market is an appendage of the Stock Exchange and therefore serves to assist. The major participants in this market are stockbrokers and banks such as acceptance houses, investment banks, issuing houses, etc. The mode of operation in this market is similar to that of the first tier securities market but less restricted. The centre of activities for the secondary market is the Stock Exchange which provides a market in which holders of existing ‘quoted’ shares wishing to sell such shares can make contact with individuals and institutions who are interested in buying them. Hence the secondary market is dominated by the Stock Exchange, which provides a forum for trading in securities. Such a forum is a absolute necessary since many of the buyers of new securities will eventually resell them.

EVALUATION
1. What is first tier securities market?
2. Explain the Securities and Exchange Commission

STOCK EXCHANGE
Capital serves as the nucleus of any functional business unit. The need to source for this factor becomes a major focus of the finance manager. Registered companies or Limited Liabilities companies need fund in large volume. Hence there’s need to source for fund. A market which provides an answer to this is the stock exchange market.

Stock Exchange– is a highly organized market where investors can buy and sell existing securities such as shares, debenture, stock. The stock Exchange serves as medium through which companies raise capital for growth and development. The stock exchange market ensures that every transaction must follow prescribed set or rules and regulations, which are complex in nature.

The Lagos Stock Exchange which is an essential part of the capital market was established in 1960 through the Act of parliament with its branches in Abuja and Port Harcourt. All public Limited Liability companies are quoted in stock exchange.

HOW STOCK EXCHANGE OPERATES

A transaction at the stock exchange is facilitated by the brokers and jobbers. Not everybody is permitted to trade directly at exchange except the members. The actual dealers (participants) in securities are the jobbers who tend to specialize in particular types of stocks while the brokers act as agent for potential buyers. A broker working on behalf of a client will approach the Jobber with the intension of knowing the price. The Jobber will then quote for him two prices; higher price as the selling price and lower price as the buying price. The difference is the ‘Jobbers turn’. When the broker signifies his intention to buy, the necessary documents will be prepared.
The shares of well known companies are known as blue chips, while gilt-edged refers to government stocks. Prices of shares are quoted “cum-div” or “ex-div”. “cum-div” denotes price at which the holders of such shares has the right to receive the next dividend payable, while “ex-div” denotes price at which the holder of such share has no right to receive the next dividend.
Two documents are prepared to speed up transactions: contract not and transfer form note
Contract Note– is a document sent by a stockbroker to his client to confirm a purchase or sale made on his behalf, while Transfer Note– is used to transfer ownership of shares.

FUNCTIONS OF STOCK EXCHANGE

1.Stock Exchange market serves as avenue of raising capital for business growth.
2.It provides employment opportunities for vast number of people e.g. brokers, jobbers, clerks and others
3.Information which informs business decision are made available to foreign and local investors through stock exchange.
4.Stock Exchange provides yardstick for measuring performance of quoted companies.
5.Stock Exchange provides avenue for the public to invest their idle fund in form of subscribing shares.
6.Dividends that accrued to shareholders serves as revenue in turn improve their living standard.

EVALUATION

1.What is Stock Exchange? Mention any securities traded in stock Exchange.
2. Outline five functions of stock exchange.

PARTICIPANTS OF STOCK EXCHANGE
The following are the participants in the stock exchange.
1. Public Limited Liability Companies e.g. Dunlop Nig. Plc, Access Bank Plc, First Bank of Nigeria Plc, Zenith Bank, Guinness Nigeria Plc, UTC Nigeria Plc, Longman Nigeria Plc etc.
2. Brokers
3. Jobbers
4. Speculators (Bull ,Bear and Stag)
5. Government
6. Issuing houses

INSTRUMENTS TRADED IN STOCK EXCHANGE MARKET

The instruments used in stock exchange market are shares, stock and debenture
A. Shares and Stock – Stocks and share are securities purchased by individuals, which is an evidence of contributing part of the total capital used in running an existing industry. Share and stockholders are entitled to dividend

B.Debenture – In financing business, the owner’s fund (equity) can be used or debt. Debenture is a debt instrument which entitles the owner to a series of cash flow known as interest. A debenture holder is a creditor to a business unlike the shareholders.

EVALUATION
1.Mention any five participants in the stock exchange you know.
2.Mention any three instruments traded in the stock exchange.

DEVELOPMENT BANK
A development bank is a financial institution setup purposely to offer medium and long term loans meant for development. It provides loans for projects in the area of agriculture, commerce and industry.

EXAMPLES OF DEVELOPMENT BANKS IN NIGERIA
(1) BO1- Bank of Industry
(2) NARDB- Nigerian Agricultural and Rural Development Bank
(3) FMBN- Federal Mortgage Bank of Nigeria
(4) UDB – Urban Development Bank
(5) NEB – Nigerian Education Bank
(6) NEXIM – Nigerian Export and Import Bank
(9)NACB – Nigeria Agricultural and Co-operative Bank

FUNCTIONS OF DEVELOPMENT BANKS
Provision of long term loans for capital projects
Implementation of government’s industrial development policies
Supervision of projects
They give advice to both the government and industrialists
They underwrite securities issue
They contribute to manpower development and provision of technical support
They conduct extensive study on the industrial sector e.g. feasibility studies
They monitor and enhance general economic development activities
They undertake research on industrial development

EVALUATION QUESTIONS
1. Define development banks
2.Outline five functions of development banks

WEEKEND ASSIGNMENT
1. A government treasury bill is a form of debt instrument which falls due for repayment after. (a) 3 months (b) 9 months (c) 2 years (d) 5 years (e) 10 or more years
2. A stockholder partakes of the profits of a limited liability business by receiving. (a) shares (b) profits (c) wages and salaries (d) dividends (e) gifts
3. A debenture holder is entitled to payments in form of _____(a) allowance (b) interest (c) salary (d) donation
4. Long term loans can be secured from _______ (a) commercial banks (b) discount houses (c) development banks (d) acceptance house
5. In the capital market, money can only be borrowed for _______(a) long term (b) short term (c) capital projects (d) public utilities
THEORY
1. a What is a capital market?
b Describe any three instruments used in the capital market.
2. a Define Stock Exchange.
b Outline any five functions performed Stock Exchange.

3RD TERM ECONOMICS

FOR SS2

WEEK 6: BUDGET
A budget may be defined as a financial statement of the total estimated revenue and the proposed expenditure of a government in a given period, usually a year.

FUNCTION / USES / IMPORTANCE OF BUDGETS
National budget is used to achieve the following objectives
It is used as a means of raising revenue
It is used to control inflation
It is used to as a remedy a depression (recession) or deflation.
It is used to correct a balance of payments deficit
It is used as a tool for economic planning
It is a means of enhancing public welfare and reducing income inequality in the country
Budgets are used to allocate resources between different sectors of the economy
It is used to control the economy with the arm of fostering economic growth and development.

TYPES OF BUDGET
1. Balance Budget: This is when the total estimated revenue is equal to the proposed expenditure of the government. This means that nothing will be left as reserve from the money collected in form of revenue
2. Surplus Budget: A budget is called surplus budget when the total estimated revenue is more than the proposed expenditure. In this type of budget, not all the estimated revenue is proposed to be spent in that year. That is, there will be reserve.
3. Deficit Budget: This is when the government total proposed expenditure for the period is more than the total estimated revenue. The shortfall in revenue is sourced through borrowings, printing of more currency, aids and grants etc.

ECONOMIC CONDITIONS WARRANTING THE ADOPTION OF THE DIFFERENT TYPES OF BUDGETS
1. A budget surplus is desirable in period of inflation because it reduces aggregate demand thereby reducing inflationary pressure in the economy
2. A deficit budget is used in the following instances. (a) To reduce unemployment by increasing aggregate demand. (b) To finance a national emergency such as war (c) To remedy a deflationary trend

DEBT
National debt or Public Debt refers to the sum total of debts owed by the government of a country both internally and externally.
The debts may or may not be with interest.

REASONS WHY GOVERNMENT BORROW
1. To finance deficit budget
2. To finance a huge capital project
3. To prosecute a war i.e. for the procurement of ammunitions and other war materials.
4. To service existing loans
5.To manage an emergency situation eg flood, drought, epidemic, famine
6.To correct an unfavourable balance of payment

INSTRUMENTS OF GOVERNMENT BORROWING IN NIGERIA
1.Treasury Bills – used for short term borrowing i.e. 90 days
2.Treasury Certificates- used for medium term borrowing i.e. 1 – 2 years
3.Development Stocks – used for long above
4.Stabilization Securities
5. National Saving Scheme
6.Negotiation with External Financial Institutions
7. Municipal Revenue Bond

EFFECTS OF HUGE NATIONAL DEBT ON THE ECONOMY OF A COUNTRY
1. It reduces the availability of foreign exchange
2. It makes a country to be susceptible to the dictates of external creditors.
3.It makes it difficult for the country to source fresh loans – i.e. it lowers a country’s credit ratings
4.A large domestic debt will influence the distribution of income in the country
5. The servicing of an external debt will involve an outflow of resources which can otherwise be used for economic development.
6.The servicing of a large national debt will limit the government’s ability to provide welfare / social services to the people

REVENUE ALLOCATION
Meaning of Revenue Allocation
Parts of Revenue Allocation
Revenue Allocation Formula.

MEANING OF REVENUE ALLOCATION
Revenue allocation refers to the sharing of the nation’s wealth among various tiers of government or various units that make up the country. The various units include: Federal, State and local governments.

OF REVENUE ALLOCATION
Revenue allocation is grouped into two major parts namely:
1.Vertical Revenue Allocation
2. Horizontal Revenue Allocation

EVALUATION
What is national debt.
State five reasons why government borrow.

Vertical Revenue Allocation

– in vertical revenue allocation, revenue accruing to the federal account is shared among the three tiers of government – Federal, State and Local government.

Horizontal Revenue

Allocation – under the horizontal revenue allocation, revenue accruing to federation account is shared among the units within a given level of government. It involves certain principles based on some factors to be applied in revenue allocation. These principles include:
1. Population size
2. Land mass
3. Derivation, e.g oil producing areas..
4. Ecological problems.

REVENUE ALLOCATION FORMULA
This involves the weight assigned to various principles e.g. Federal government – 48.5%, State – 24%, Local government – 20%, special fund – 7.5%. These are just for the short time. It should be noted that there is no fixed revenue allocation. It changes from time to time. The Revenue Mobilization Allocation and Fiscal Commission (RMFC) is always at work trying to work out a proposal for a new revenue sharing formula.

EVALUATION QUESTION
1.Distinguish between vertical revenue allocation and horizontal revenue allocation.
2.Mention any three principles used in sharing the revenue accruing to Federation Account.

WEEKEND ASSIGNMENT
1. Government impose taxes mainly to (a) punish the citizen (b) provide social amenities
(c) donate to poorer countries (d) execute white elephant projects
2. Budget deficit can be financed by (a) reducing the level of taxation (b) printing more money (c) lending to financial institutions (d) employing more workers
3. A continuous fall in the general price level is called (a) recession (b) depression (c) deflation (d) stagflation.
4. Budget surplus implies that (a) expenditure equals revenue (b) expenditure is less than revenue (c) expenditure is greater than taxation (d) direct tax is more than indirect tax.
5.The greatest revenue earning industry in Nigeria is (a) construction (b) agriculture (c) manufacturing (d) mining.
THEORY
1. What is a balanced budget?
2. State two reasons why a government can adopt a deficit budget

WEEK SEVEN IS MID TERM BREAK:

3RD TERM ECONOMICS FOR SS2

WEEK5: TAXATION– is defined as the act of imposing a compulsory levy by the government on the income of individuals, firms, and goods and services. That is, itis a compulsory payment made by each eligible citizen towards the expenditure of the country. It is a compulsory contribution imposed by a government authority on goods, individuals, corporate bodies (business) without regard to the specific benefits that the taxpayer may receive.

FEATURES OF TAXATION
It is a compulsory levy that must be paid by individual or corporate bodies.
It is levied only by the government or its agency
It is a payment made as a sacrifice.
It is meant for the general welfare of everybody.
Tax payment has age limit.

REASON FOR THE IMPOSITION OF TAXES BY THE GOVERNMENT
1.To raise revenue for the government
2.Taxation is used to redistribute income i.e. to lower / reduce the income gap between the rich and the poor.
4.To protect infant industries – infant industries are newly formed industries that has to be protected from competition by already established industries.
5.To stop or discourage the importation of dangerous or harmful goods e.g ci******es
Taxation is used as a fiscal device to control the economy i.e. to control inflation, deflation or influence the rate of consumption, investments and savings in the economy
To encourage industrialization e.g by tax rebates or tax holidays for industrialists
Taxes are also used to promote social services such as social insurance, poor and elderly relief, health insurance etc.

EVALUATION
Define Tax.
List four importance of tax to the govt.

PRINCIPLES OF TAXATION
Adam Smith in his book Wealth of Nation lays down four canons or attributes of a good tax system. They are:
1.Principle of Equity: This principles emphasizes that the tax imposed must be in consonance with the tax payer’s ability to pay. In other words, the tax imposed should be in fair proportion to the taxpayer’s income. The progressive tax system reflects this.
2.Principle of Certainly: The tax payer must know how much he / she is to pay, in what medium, where, when and how the tax is to be paid.
3.Principle of Convenience: The method and time of tax collection should be convenient to the tax payer e.g wage/salary earners at the end of the month, farmers during harvesting period etc.
4.Principle of Economy: The cost of collection of taxes should be small relative to the amount collected. It will neither be frugal not prudent to use resources of N10,000 to collect In addition to the above, the following principles of a good tax system should be noted.
5. Principle of Flexibility: A good tax system should be capable of being changed when conditions and situations warrant such changes.
6. Principle of Neutrality: A good tax system should not be a disincentive to enterprise or productively i.e. it should not interfere unnecessarily with the supply and demand for goods, services and labour.
7. Principle of Simplicity: A good tax system should be simple enough for easy understanding.
8.Principle of Impartiality: There should be no discrimination in the collection of taxes.
9. Difficult to evade: A good tax system should ensure that tax evasion / tax avoidance are kept at a minimum.

EVALUATION
Highlight the principle of tax.
What is tax base?

SYSTEMS OF TAXATION / FORMS OF INCOME TAX

i.Proportional Tax: This is a form of income tax in which the same rate of tax is applied to the respective income of taxpayers. For example, if government applies a tax rate of 10% on all taxpayer income, a worker earning N15,000 will pay N1500 tax while a worker earning N60000 will pay N6000 as tax.

ii.Progressive Tax: In this case, the percentage levied (tax rate) increases with the size of one’s income. A progressive tax takes a larger percentages of income from people with larger income. It reduces inequality of income from people with larger income. It reduces inequality of income distribution eg Pay As You Earn (P.A.Y.E.)

iii.Regressive Tax: In this case, the proportion removed as tax from one’s income decreases as the person’s income increases i.e. The higher the income, the lower the rate of tax eg Poll tax, indirect tax etc. A regressive tax aggravate inequality of income distribution

TYPES OF TAXATION
Taxes are divided into two broad categories namely direct taxes and indirect taxes

DIRECT TAX:It is the type of tax which is imposed directly on income of individuals or organizations
by the government or its agency. The burden of direct tax is borne by the payer. Examples of direct taxes are (a) Income tax (b) Company tax (c) Capital gain tax (d) Poll tax etc.

ADVANTAGES OF DIRECT TAXES
1.They are progressive in nature
2.The incidence of direct tax is easy to ascertain
3.They are easy to calculate
4. Payers find them convenient to pay
5.Some specific group of people or business could be granted exemption from payment of direct tax.

DISADVANTAGES OF DIRECT TAXES
1. They discourage savings
2. They discourage investments
3. They are difficult to assess (determined with accuracy) eg company tax.
4. Cases of tax evasion is high (frequent)
5. They discourage hard work
6.It may result to squabbles between taxpayers and tax officials

ECONOMIC EFFECTS OF DIRECT TAXES
Direct taxes lead to a reduction in disposable income and consequently a reduction in consumption.
It discourages savings
It discourages hard work
It discourages investments and this would, in turn cause unemployment.
It leads to a redistribution of wealth
It reduces capital available for a company in form of retained profits

EVALUATION
Give three examples of direct tax.
What are the advantages of direct tax?

INDIRECT TAX
This is a tax levied on goods and services. They are initially paid by either the manufacturer or importer of the goods who, as far as possible shifts the burden to the consumers in form of high prices. Examples of indirect taxes are customs duties (import duty and export duty) excise duty, purchase tax etc.

CLASSIFICATION OF INDIRECT TAX
This classification reflects the different methods of calculating custom duties.

Specific Tax: the amount difference of tax to be paid depends on the quatity of goods bought so that the greater the quatity of goods bought the greater the tax to be paid.

Ad Valorem Tax: the amount of tax to be paid depends on the value or quality of the commodity. This value or quality is measured in terms of the price of the commodity. This means that goods which have higher prices are supposed to have higher values and are therefore taxed more heavily than goods whose values and thus prices are lower.
Their collection is less difficult
They cause less squabbles
It yields more revenue to the government than direct taxes.
They are not easy to evade
The burden is shared among all sections of the society.

DISADVANTAGES OF INDIRECT TAXES
1.It causes inflation i.e. increases in the prices of goods.
2. It may cause scarcity of goods
3. They are unreliable sources of revenue
4. Indirect taxes are regressive in nature
5.They are non-discriminatory i.e. some group of people cannot be granted exemption from paying.
6.They restrict free trade between different countries.

ECONOMICS EFFECTS OF INDIRECT TAXES
It can lead to inflation
It encourages smuggling
It reduces production e.g. excise duties thereby causing scarcity of goods.
It discourages investment
It can lead to changes in the consumption pattern.

PROBLEMS ASSOCIATED WITH TAX COLLECTION IN NIGERIA
Corruption and non- challant attitudes of revenue officers / tax collectors.
Tax evasion and Tax avoidance
Lack of proper accounting records by business enterprises
Ignorance / illiteracy / mass poverty of the populace
Apathy of tax payers as a result of corruption in high places
Government’s inability to provide essential infrastructure and amenities eg electricity does not encourage people to pay tax.
Failure to declare real income, especially those in private firms

TAX EVASION AND TAX AVOIDANCE

Tax Evasion– refers to an illegal attempt not to pay tax or pay less tax. For instance, someone could make false declarations of income or tax could be dodged completely.
Tax Avoidance- refers to the efforts of a tax payer not to pay tax by finding a legal course to reduce the amount paid as tax. For example, the taxpayer could discover a part of the tax law that is ambiguous. He can therefore take advantage of this and easily defend himself legally if he does not pay tax or if he pays less tax. Tax avoidance is a legal etc.

CONCEPT OF TAX BASE AND TAX RATE

Tax Base:– refers to the item of the object which is taxed. i.e. the amount of the salary wages, income, profits, gains or assets upon which the calculation of tax to be paid is based

Tax Rate:– refers to the percentage that is applied to the tax base in order to calculate the amount of tax payable by the taxpayer.

EVALUATION
State the difference between tax evasion and tax avoidance
List five problems associated with tax collection

INCIDENCE OF TAXATION
Incidence of Tax– refers to the point where the tax burden finally rests. It is the final location of the tax burden in terms of the person who feels the financial pains of the tax payment.

TAX BURDEN– refers to the onus, the psychological pain effects as relate to the amount paid as tax. The burden of taxation is the financial pain in parting with a proportion of one’s income as tax. The incidence or burden of taxation lies on the person who finally pays the tax. There are two types of tax incidence.

a. Formal incidence: this refer to where the in initial burden of taxation lies. The payer of a direct tax bears the initial burden of tax. For indirect taxes, the producers or the middlemen bears the initial burden of taxation.

b. Effective incidence: This refers to who bears the ultimate or final burden of taxation. In the case of direct taxes the payer bears the full burden of taxation. He bears both the formal and effective incidence.

INCIDENCE OF TAXATION AND ELASTICITY OF DEMAND FOR GOODS
In the case of indirect taxes, the burden of taxation may be borne by the producer (seller) or the consumer, or it may be shared between the producer (seller) and the consumer. The extent to which the producer (or seller) or the consumer will bear the burden of indirect tax will depend on the elasticity of demand for the commodity which is taxed.

1.Where the demand for the commodity is Perfectly Inelastic, the whole tax burden can easily be shifted to the consumer by the seller.

2.Where the demand for the commodity is Perfectly Elastic, the seller or producer will bear the whole burden of taxation. This is because any attempt to increase prices will make the demand for the commodity to fall to zero. The tax burden cannot, therefore be passed to the consumer.

3.Where the elasticity of demand for the commodity is Unitary, tax burden is shared equally between the producer / seller and the consumer.

4. Where the elasticity of demand for the commodity is moderately elastic or moderately inelastic, the burden of taxation will be shared between the producer (seller) and the consumer depending on the extent of the elasticity.

EVALUATION QUESTIONS
1. Define the term – formal incidence of tax
2. Show with the aid of a diagram, who bears the incidence of tax of a commodity having inelastic demand.

WEEKEND ASSIGNMENT
1. A tax on a commodity whose demand is perfectly inelastic will fall heavily on the (a) consumer (b) manufacturers (c) wholesalers (d) retailers
2. A tax whose rate increases as income increases is (a) an indirect tax (b) a progressive tax (c) a regressive tax (d) a proportional tax.
3. Which of the following is not a principle of taxation? (a) certainty (b) convenience (c) economy (d) security
4. Mr Bello’s income is $800 per month while that of Mr Jatau is $1200. If Mr Bello and Jatau pay $80 and $120 respectively as taxes, the tax system is …………… (a) progressive (b) regressive (c) proportional (d) ad-valorem
5. A worker earns $80000 per annum. He pays $4000 as tax. What percentage of his income does he pay as tax? (a) 10% (b) 8% (c) 5% (d) 4%.

THEORY
1.What is an indirect tax?
2. State three economic effects of taxation.