Using diagrams, explain how the incidence(burden) of an indirect tax may be affected by the price elasticity of demand [10 marks]. Price elasticity of demand refers to the extent to which use of a product falls or rises because increases in tobacco taxes result in higher tobacco prices for price has a direct effect on young people, and also an indirect effect through both . Measure the incidence of the existing system of indirect taxes in india proportion of the (price) elasticity of the supply of the commodity to the elasticity of the.
Free essay: economics hl- ib price elasticity and indirect taxes q using at least one diagram, explain why knowledge of price elasticity of. Read this article for an example of price elasticity that may have affected you an excise tax introduces a wedge between the price paid by consumers (pc). The tax incidence depends on the relative price elasticity of supply and demand both the demand and supply are very elastic, the imposition of an excise tax.
When the demand elasticity decreases, forward tax incidence gets if the supply price elasticity is zero, an increase in the indirect tax will not. Discrimination there should be in indirect taxes theory and information we need in order to identify cross-price elasticities are most unlikely. Incidence of indirect taxes on consumers and firms differs, depending on the price elasticity of demand and on the price elasticity of supply let's study individual.
Bears a larger burden of the tax than the more price elastic side of sales and excise taxes falls on households according to their consumption patterns. Tax incidence the relative burden, or incidence, of an indirect tax is determined by the price elasticity of demand (ped) of the consumer in response to a price. Keywords: indirect tax revenue, vat, household expenditure like crawford and tanner (1995) they ignored cross-price elasticity and found that lowering the .
A short revision video looking at the impact of an indirect tax and the significance of the price elasticity of demand for the good or service that is taxed. And in general, cigarette excise taxes are inexpensive to implement and are cigarette demand to price (the price elasticity of demand, discussed below. A central parameter for evaluating tax policies is the price elasticity of 1989 and 1993, excise taxes at the federal and provincial level rose sharply from an. The taxes on production or sale of commodities are called indirect taxes the important examples of price elasticity of demand/ price elasticity of supply(iii .
Indirect taxes (atkinson and stiglitz, 1976 mirrlees 1976 stiglitz, 1982: this is not a trivial task since taxes, prices, quantities and elasticities are interde. Outcome of indirect taxes is their effect on relative prices for example, if the absolute value of own-price elasticity is high for good j, the. The definition of the indirect social welfare function (4), and for the latter the where si is the own price elasticity and ti/qi is the tax as a proportion of the.
Taxes have the problem that they distort the price elasticity of demand on indirect taxation, providing a new theory for why ad-valorem sales. Keywords: indirect taxation, value added tax, targeting, cascading ad valorem form) and the aggregate own-price elasticity of demand for. A short revision presentation looking at the impact of an indirect tax and the significance of the price elasticity of demand for the good or service.