Sunday, June 10, 2007

The effect of Removing an indirect tax

EXPLAIN THE REMOVAL FACT OF AN INDIRECT TAX UPON THE MARKET FOR A PRODUCT.

  • The supply curve will shift to the right. This will cause a lower price and higher quantity.
  • The effect depends upon elasticity of demand. If demand is inelastic removing an indirect tax will cause a big fall in price.
  • If demand is elastic it will cause a small fall in price and large increase in quantity.
Elasticity of demand

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