Effects of Taxation on Economy Essay Example | Topics and Well Written Essays - 750 words

cause of Taxation on Economy - Essay ExampleA tax on a good tends to be shifted from the producer forward to the consumer and from the consumer backward to the producer. A tax on production of a commodity tends to raise its price and ordain, therefore, be normally borne by the consumer. exactly a tax on intake is likely to check consumption and tends to be shifted backward to the producer.The tax levied of consumers raft reduce the submit. Commodity taxes atomic number 18 disincentive to purchase the commodities on which they are levied. The amount by which the tax reduces purchases will depend upon the pushover of demand for that commodity. The less elastic is the demand and the put up, the less will the demand be reduced.On the new(prenominal) hand the tax levied on corporations will impose a disincentive on a home to incorporate. Taxes on firms lowlife lead to low motivation for investment, which will in turn reduce the append for goods if the regime has oblige pri ce control with tax initiatives.A tax on income tends to reduce the major power to save and invest on the part of individuals. A tax on net profits of stock firms will reduce their ability to save and invest. A decrease in investment is bound to partake adversely the level of output. The equilibrium price and quantity will be changed according to the elasticity of demand of that good. ... The equilibrium price and quantity will be changed according to the elasticity of demand of that good. The extent to which a commodity tax will actually be shifted will depend upon the nature of demand and supply curves. If demand is inelastic, as is the case with the necessaries of life the people must buy the commodity. The producer will be in stronger position and almost the entire burden of the tax will be shifted on to the consumer. But in the case of elastic demand, the people will buy less. In that case the price will not rise by the full amount of the tax, and the tax will be partly born e by the producer (Dewett, 571-572).- In this market, describe a hypothetical situation where a price ceiling or floor could be imposed. What implications would this have for the marketGovernment actions may shift demand and supply curves as when changes in safety legislation shifts the supply curve. Price controls are Government rules or laws that forbid the adjustment of prices to clearly markets.Price controls undertaken in the market can be of two types.1. Price ceilings In this case Government applies an upper limit for the sellers and they cannot charge more prices upper than that limit. Such a limit is usually imposed when the shortage of a commodity is expected to increase the price of a commodity. Although through charging high prices the circumscribe of the scarce commodities can be undertaken. The solution to the problem of scarce supply of a commodity can be responded by an increased price but this is an unfair solution. For example high food prices can lead to conside rable hardship among the poor. In the case of above market 2. Price floors Governments impose a limit of minimum price of