Economic problems?

Question

Helloo.....
Pls help me at Economic .....
The govement imposes tax on cars and the tax is to be paid by sellers.
a)Will the price paid by consumers rise?WHY......
b)Could the supply increase?WHY.....
Can ur explain 4 me....
and teach me how to draw the appropriate diagrams.
Thanks....

Answer 1

Well if the tax is paid by the seller and if the burden of tax is not passed on to the buyer than cetirus peribus(other things remainin constant) the price paid by consumer wont increase. But if the seller pass on the burden on to consumer than price will increase.

For Ex. If cost of car is Rs 10000 and i being a seller pay a tax of Rs 1000 on that. Now if u being a consumer comes to buy this car from me and if i charge Rs. 10000 only than that means that tax is borne by me only, but if i charge ur Rs. 11000 than that means i have passed on the tax burden onto u.

Supply does not increase due to increase in price due to tax reason. But if we look it from pure economics point of view than with increase in price of comodity its supply should increase, cetris peribus.

For Diagram: Take units on X-axis and Price on Y-axis. Demand curve is downward slopin idicatin that at lower price demand wil be higher, and Supply curve will be upward risin indicatin that with increase in price supply will increase.

Now if there is permananent increase in price of car due to tax and tax burden is passed on to the consumer than, there will be a shift in demand curve to wards the origin indicatin that demand of number of car decreases at the same level of price as previous. while the Supply curve will shift away from the origin i.e., topwards right hand side, Now the point where these curve wil intersect wil be the equilibrium point.

I hope this would help u in ur Eco... :-)

Answer 2

a) That should be obvious to anyone with common sense
b) If you don't know the answer to a basic economics question such as that you shouldn't be studying the subject

OK drawing the diagrams...
take a ruler and draw a horizontal line ___
At the left side of the horizontal line, draw a vertical one |
Now insert a couple of diagonal ones / and \ - label those D for demand and S for supply. In your case it probably doesn't matter which is which. Of course you will need an extra / or \. The fun bit is working out which one.

Answer 3

Find out on your own...thanks for the 2 points anyway...