How an indirect tax affects a market
How an indirect tax affects a market
An indirect tax is charged on spending on a good or service. It raises the producer's cost, so the amount supplied is lower at every possible market price. This shifts the supply curve upwards. Without the tax, the original equilibrium is at the intersection of supply SSS and demand DDD, with price P0P_0P0 and quantity Q0Q_0Q0. With the tax, the new equilibrium is at the intersection of the shifted supply curve S+taxS + \text{tax}S+tax and demand DDD, with buyer price PbP_bPb and lower quantity Q1Q_1Q1. At quantity Q1Q_1Q1, the original supply curve gives the seller price PsP_sPs.
Step-by-step lessons on OCR GCSE Economics 3.5.5 Analyse effects of taxes and spending. Each one builds up to exam-style questions. Build a solid grasp of supply and demand and cost/revenue calculations before tackling the evaluation-heavy policy topics.