THE IMPOSITION OF TAXES ON THE DEMAND

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The imposition of taxes on supply and demand is frequently used to explain the effects of economic policy in economics. The supply curve is usually depicted on a graph with the price on the y-axis and demand on x-axis. The supply curve slopes upward demonstrating that when a price of a good with inelastic demand increases, its quantity supply also increases. However the demand curve slopes downward depicting that when the price of goods with inelastic demands fall, the demand increases. Both curves intersect the y-axis somewhere at some point (Green, 2008).
The point of intersection is called the equilibrium level of supply and demand, and it shows the quantity producers of goods are willing to provide at the price buyers are willing to pay. An imposition of tax means charging duty on goods for example milk or fuel. When the price is added it has the effect of gearing the supply curve up by the tax charged. Therefore, an imposition in tax effects to an increase in income tax (Green, 2008).
According to TR Jain (2008), a price effect arises when an increase in the prices of a commodity leads to increase in revenue. The increase in price tends not to affect the quantity of goods with inelastic demand consumers’ purchase. Consumers will consume the same amount of goods of inelastic demand regardless of whether the price increases or not, this increases revenue and the supply of demand. This is usually the case in basic goods or necessities such as food and medicine. The trend further applies as well to goods with an addictive nature, such as cigarettes and alcohol, thus the demand increases so does revenue.
In conclusion, imposing tax on goods with inelastic demand directly influences the price of goods. Therefore, an effective tax is one which is