# Demand Supply Indirect Taxes

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Information about Demand Supply Indirect Taxes
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Published on September 19, 2013

Author: arvindtirkey

Source: authorstream.com

Demand & Supply: Demand & Supply Impact of Indirect Taxes IB DP ECONOMICS PowerPoint Presentation: A normal curve: a state of equilibrium D S Qe Pe Quantity Price (\$) 0 Demand & Supply: PowerPoint Presentation: Imposition of a specific tax / a percentage tax (ad valorem tax) D S S + tax Qe Pe Quantity Price (\$) Q1 P1 0 Demand & Supply: Shift in supply curve vertically upwards by the amount of tax PowerPoint Presentation: Indirect taxes: PRODUCER’S REVENUE D S S + tax Qe Pe Quantity Price (\$) P2 0 Q1 P1 Market is in equilibrium, being demand & supply at a price of Pe . After Government imposed tax (XY shown in next slide), the supply curve shifts vertically upwards from S to S+tax . What happens when cost of producing a product increases due to tax imposition? What happens to the product? What happens to the demand of the product? When demand falls, then look at the amount of supply at this new increased price. How much is the supply at this new stage in comparison to quantity demanded? This would bring a new equilibrium, which is at a price of P1 and the quantity of Q1. Supply is in excess & demand is less. So what would happen to the price? And then what would happen to demand? PowerPoint Presentation: Indirect taxes: PRODUCER’S REVENUE D S S + tax Qe Pe Quantity Price (\$) P2 0 Q1 P1 W C Y X What will happen to the price that the consumers pay? Here we see that when the product price rose from Pe to P2, the demand fell, that made producers to reduce the price from P2 to P1. Since price fell, therefore, the demand should rise, hence demand rose from Z to X, meaning consumers will pay the increased price from Pe to P1, which is half of the share of tax. Z PowerPoint Presentation: Indirect taxes: PRODUCER’S REVENUE D S S + tax Qe Pe Quantity Price (\$) P2 0 Q1 P1 W C Y X Here producers would get C for the quantity they supply Q1, after paying the tax of XY to the government. As discussed earlier, consumers pay half of the tax (PeP1) and producers pay the other half ( PeC ). Z + Producer’s revenue before tax is imposed Producer’s revenue after tax is imposed The revenue for producers fall from 0PeWQe to 0CYQ1, where PeC is contributed by the producer for tax. What will happen to the amount received by the producer? PowerPoint Presentation: Indirect taxes: PRODUCER’S REVENUE D S S + tax Qe Pe Quantity Price (\$) P2 0 Q1 P1 W C Y X Government receives tax revenue equal to CP1XY and that the market falls in size from one producing Qw units to one producing Q1 units. This may well have implications. What can that be? Producers are producing less. What change will happen in the production system? Z Tax revenue for government What happens to the amount received by the government? PowerPoint Presentation: Indirect taxes: BURDEN ON WHOM? D S S + tax Qe Pe Quantity Price (\$) P2 0 Q1 P1 W C Y X Burden of indirect taxes are shared fairly evenly between the consumers and the producers. Z Tax burden for producers What happens to the tax amount paid by producers & consumers? Tax burden for consumers PowerPoint Presentation: D S S + tax Qe Pe Quantity Price (\$) Q1 P1 0

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December 4, 2020

December 4, 2020

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December 4, 2020

December 4, 2020

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