Economics Essay Example | Topics and Well Written Essays - 500 words - 24

Economics - Essay Exampleonsuming them till they ar in a position of not being able to afford them or need approximately other external causes to prevent their usage sometimes people might even go beyond their capacity to get hold of the commodities. In much(prenominal) cases, the government has to impose a very lofty tax on the particular item for the welfare of the society (George & Wilding, 1984). Thus, the main reason operating substructure the imposition of high taxes on dependance items is the harm in catch of demand (Baumol & Blinder, 2008). One such item of addiction is tobacco that is often considered as being one of the most harmful and hazardous elements of consumption as well and this is the reason why the government of all concerned nations have decided to impose a high tax on the same.When tax is imposed on a commodity, it results to an upward paper bag in the supply curve of the commodity but the demand curve remains unchanged. This is because, the tax in such cases are imposed in the form of higher prices and thus are sales tax (Aronson, Hilley & Maxwell, 1986). So these taxes are indirect in the sense that they are transferred from the seller to the buyer. In case of a sales tax, the retailers will buy lower quantity of a product from the wholesalers which subsequently lead to a unhorse in the supply of the commodity this factor is reflected through an upward shift in the supply curve. For a commodity like tobacco having a very low price elasticity of demand, an upward shift in the supply curve with demand remaining constant, leads to a rise in the position of the chemical equaliser point and consequently, a fall in the equilibrium quantity and a rise in the equilibrium price. However, the fall in quantity is not in proportion to the rise in the final price (Lipsey & Harbury, 1992).Thus, it is found that the imposition of taxes on items like tobacco, which have a very low price elasticity of demand, is that, they serve a two-fold p urpose. Firstly, it leads to a fall in aggregate consumption so as to