taxes

# taxes - 4 d Taxes A tax is defined as being a contribution...

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4. d. Taxes A tax is defined as being a contribution made by individuals, groups, and businesses to support the government of the region within which they reside. Taxes are used by the government to increase revenue for community projects such as streets and schools – all in attempt to better the lives and living conditions of the general public. Taxes can affect both the buyers and the sellers. To begin, we will first consider a tax levied on buyers of a certain good. Say, for example, the government of a small state imposed a \$0.20 tax on all candy bars. Since this particular tax affects the buyers, the demand for the good will change; however, the supply will remain the same. true demand curve after tax demand, as seen by sellers OverallPoint: A tax on buyers shifts the demand curve downward by the amount of the tax. Now we will take a look at a tax levied on sellers of a particular good. Continuing the example from before, suppose now that the government decides to require sellers of all candy bars to send \$0.20 to the government for each bar sold. In this case, since buyers are not affected by the tax, the demand for the candy bars remains the same. Instead, the supply will change since sellers will want to supply a fewer amount. after tax supply, as seen by sellers true supply curve Overall Point: A tax on sellers shifts the supply curve upward by the amount of the tax. Figure 4.d.1. If 1 candy bar is offered for sale, a buyer will pay \$0.60; however, with the \$0.20 tax imposed, the seller will take home only \$0.40, thus shifting the demand curve down from D to DT.

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