Home > Exam revision, Fiscal Policy > AS Revision – Indirect Taxes

AS Revision – Indirect Taxes

September 28, 2015 Leave a comment Go to comments

Currently at AGS doing a 3 day AS revision course. Used this graphic to explain indirect taxes. An indirect tax will have the following effects on the market:
Indirect Tax
• The supply curve shifts vertically upwards(effectively a shift to the left) by the amount of the tax(gf) per unit. The price increases but not by the full amount of the tax. This is because of the slopes of the demand and supply curves.
• The consumer surplus is reduced from acp to agb. The portion gbhp of the old consumer surplus is transferred to government in the form of tax.
• The producer surplus is reduced from pce to fde. The portion phdf of the old producer surplus is transferred to the government in the form of tax.
• The market is no longer able to reach equilibrium, and there is a loss of allocative efficiency resulting in the deadweight lost shown by the area bcd. This represents a loss of both consumer surplus bhc and the producer surplus hcd that is removed from the market. The deadweight loss also represents a loss of welfare to an individual or group where that loss is not offset by a welfare gain to some other individual or group.

Advertisements
Categories: Exam revision, Fiscal Policy Tags: ,
  1. David Parr
    September 28, 2015 at 8:40 pm

    This is how Piet Mondrian saw it…

    [cid:5142B8E4-EB35-4F38-8CA5-197A996AFB09]

    David Parr
    Head of E-learning
    TIC History of Art; Teacher of Media Studies, Senior Painting
    King’s College
    PO Box 22 012
    AUCKLAND 1640

    sent by iPad

  1. No trackbacks yet.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: