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