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GDB
Idea Solution:
Impact of health Tax
On Producer Side
When the government imposes tax on output of a firm it
increases firm's marginal cost by the amount of the tax. In return the firm
will reduce output to the point at which the marginal cost plus the tax equals.
Sales tax shifts supply curve inward.
When the Govt. implemented the health tax the output of
the firm reduced to maintain as there is an effect on demand side too. As shown
in the figure that the output level is reduced from 01 to Q2
On Consumer Side
When the govt increases or implements the tax on goods,
these taxes influence the consumer behavior. The immediate effect is the price
level of the goods increased so the demand for
Goods reduced because it reduces the buying power of the
consumer so consumer buy less p with these prices.
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