Sin Taxes a Burden on Consumers
Sin taxes a burden on consumers
With sin taxes constantly rising consumers must wonder who is paying for the tax that is levied on the good or service. For some goods and services the tax is shared but tax on other goods and services, depending on the elasticity of the demand or supply, are sometimes completely paid by the consumer or producer.
Sin taxes are a tax levied on products or services that is supposed to help the government correct the damages that the product or service causes. Is the tax burden on tobacco products shared equally between producers and consumers? Unfortunately it isn’t, as tobacco is an addictive substance, and more will be explained why it isn’t in the analysis.
In the next part the economic concepts that will be used, to prove that the burden of tax isn’t shared equally between producers and consumers, will be explained and shown how they relate to the topic on hand. Then there will an analysis where the how I got to my conclusion will be shown and the price elasticity of cigarettes will be worked out. And finally my conclusion will be stated.
The economic concepts that will be used to analyse the statement are the principle of elasticity of demand, the principle of elasticity of tax incidence, the law of demand and the law of supply. Here is an explanation as to what each concept is. The law of demand states: ceteris Paribas, the higher the price of a good the less demanded, the lower the price of a good the more demanded. (Parkin, Powell, Matthews, 2008, 59)
The law of supply states: Ceteris Paribas, the higher the price of a good the more supplied ad the lower the price of a good less supplied. (Parkin, Powell and Matthews, 2008, 64)
We know that the equilibrium price and quantity change when the supply or demand curve shifts, but does the price and quantity shift by a small or large amount. This all depends on the responsiveness of the quantity demanded to a change in price. Price elasticity of
With sin taxes constantly rising consumers must wonder who is paying for the tax that is levied on the good or service. For some goods and services the tax is shared but tax on other goods and services, depending on the elasticity of the demand or supply, are sometimes completely paid by the consumer or producer.
Sin taxes are a tax levied on products or services that is supposed to help the government correct the damages that the product or service causes. Is the tax burden on tobacco products shared equally between producers and consumers? Unfortunately it isn’t, as tobacco is an addictive substance, and more will be explained why it isn’t in the analysis.
In the next part the economic concepts that will be used, to prove that the burden of tax isn’t shared equally between producers and consumers, will be explained and shown how they relate to the topic on hand. Then there will an analysis where the how I got to my conclusion will be shown and the price elasticity of cigarettes will be worked out. And finally my conclusion will be stated.
The economic concepts that will be used to analyse the statement are the principle of elasticity of demand, the principle of elasticity of tax incidence, the law of demand and the law of supply. Here is an explanation as to what each concept is. The law of demand states: ceteris Paribas, the higher the price of a good the less demanded, the lower the price of a good the more demanded. (Parkin, Powell, Matthews, 2008, 59)
The law of supply states: Ceteris Paribas, the higher the price of a good the more supplied ad the lower the price of a good less supplied. (Parkin, Powell and Matthews, 2008, 64)
We know that the equilibrium price and quantity change when the supply or demand curve shifts, but does the price and quantity shift by a small or large amount. This all depends on the responsiveness of the quantity demanded to a change in price. Price elasticity of
Bibliography: M. Parkin, M. Powell and K. Matthews (2008) Economics 7th Edition, O’Sullivan, Sheffrin and Perez (2008)