Introduction

It is the function of the authorities to supply wellness. instruction. and security services to its components to procure their public assistance. In order to finance all of the said functions and plans of the authorities to the state. revenue enhancement aggregation is one of the ways by which the authorities can bring forth financess and normally being imposed to manufacturers in the market. Tax’s function in the economic system is non merely for income coevals of the authorities but besides as a tool for the stabilisation of the economic system through chairing assorted concern entities. therefore impacting the supply and demand of goods and services in the market. In this respect. this paper aims to place which party revenue enhancement is being levied between consumer and manufacturers every bit good as its effects on the degree of monetary values. demand. and supply in the economic system.

Consumers versus Manufacturers

Theoretically talking. revenue enhancement is being imposed to the manufacturers in the market. Like for case. manufacturers of coffin nails and spiritss are being charged of wickedness revenue enhancement since the said merchandises are considered to be “socially unacceptable products” . Sin revenue enhancement does non merely deter the production of socially unacceptable goods. such as coffin nails and spiritss. it besides generates more financess to the authorities and protects the involvement of consumers in the market. The authorities can non forbid the merchandising of these socially unacceptable goods due to certain ground. yet. sing the harmful effects of the above mentioned merchandises. what the authorities could least make is to deter its extended production through imposing higher revenue enhancements to its manufacturers ( GMA News. 2007 ) . But since coffin nails and spiritss are habit-forming in nature. its manufacturers will now hold adequate room to go through the wickedness revenue enhancement that they incur from the authorities through raising the monetary values of their merchandises in the market. In other words. at first. the revenue enhancement is being levied on the manufacturers. but one time the manufacturers pass the revenue enhancement to the consumers through monetary value additions. so. that is the lone clip when 1 can see that revenue enhancement is being levied on the consumers.

Impacts of Tax on Demand and Supply

Since revenue enhancement is being levied straight from the authorities to the manufacturers. revenue enhancement can therefore impact the operational costs of manufacturers in the market. Manufacturers of elastic goods in the market are forced to cut down their production degree once the authorities increased its revenue enhancement rate in order to keep their profitableness and protect their involvements. Elastic goods are type of merchandises or services which measure demanded alterations dramatically with a corresponding monetary value alteration ( Moffatt. 2008 ) . Due to this feature of elastic goods. manufacturers can non go through the revenue enhancement that they receive from the authorities since it will merely ensue to the depreciation of consumer’s demand degree in the market.

Merchandises such as eating house repasts are considered to be elastic goods. and by the clip its monetary values increase due to elating of authorities revenue enhancement rate it is already the inclination of eating house proprietors is to minimise the figure of their repasts or helpings in order to cut their production costs since they can non increase their monetary values for the ground that it will merely trip the impairment of consumer demand on their merchandises. On the other manus. the manufacturers of inelastic goods such as coffin nail. spirits and electricity have the privilege to go through either the full revenue enhancement or a part of the revenue enhancement that they receive from the authorities through increasing the monetary values of their merchandise since measure demanded of these types of goods does non alter much with monetary value alteration. Meaning. manufacturers of inelastic goods can work the fact that consumers will still purchase their merchandise at any cost or monetary value degree. In other words the consequence of revenue enhancement on supply and demand of an economic system depends on the type of merchandise involved whether it is an elastic or inelastic type of good.

Effectss of Tax on Equilibrium Price and Quantity

As for the effects of authorities revenue enhancement on equilibrium monetary value and measure. it consequences for the addition on the equilibrium monetary value degree particularly if the type of revenue enhancement implemented is a corporate revenue enhancement [ P*+tax = new equilibrium monetary value ] . Taxs are normally being added to the monetary values of goods in the market by manufacturers. The ensuing equilibrium monetary value in the market already includes the original monetary value degree plus the revenue enhancement from the authorities. Once the equilibrium revenue enhancement has already increased. it creates adequate force per unit area for the equilibrium measure to diminish since consumers are now discouraged to purchase expensive merchandises due to budget restraints. cet. par. Like for case. say the original monetary value of a unit of Nike places in the market is $ 250. The authorities imposed a Value Added Tax equal to 5 % revenue enhancement rate to Nike for every unit of shoe that it will bring forth in the market. In order for Nike to protect its involvement and profitableness. its inclination is to go through the Value Added Tax to the consumers with an terminal monetary value equal to $ 262. 5. Since footwear are considered to be an elastic good. so the natural response of footwear consumers in the market after Nike pass the revenue enhancement that they receive from the authorities is to happen other footwear trade name that is comparatively cheaper than Nike.

Imposition of Floor Price or Price Ceiling

Suppose a typhoon destroyed around 50 % maize output in the state and created deficit of supply of maize in the market. This deficit of supply of maize in the market would so set adequate market force per unit area for the demand of maize consumers to lift robustly in the market thereby giving maize distributers plenty ground to significantly raise the monetary values of their maize on their warehouses. In order for the federal authorities to protect the involvement of consumers. what is normally being done is to enforce a monetary value ceiling to maize in the market to restrict the monetary value degree that maize distributers can merely bear down to their clients. Merely on terrible cases when the authorities will implement monetary value ceiling such as mentioned above since it provides high dead weight loss in the market as a whole.

Decision

Tax. therefore. provides an avenue towards the authorities to command the supply and demand in its economic system for the benefit of the bulk. Tax tends to increase the equilibrium monetary value degree. particularly if the merchandise concerned is an elastic good. since manufacturers can non go through the revenue enhancement that they receive from the authorities to the consumers.

Mentions

GMA News. ( 2007 ) . Teves Orders Review of Sin Taxes. Retrieved June 17. 2008. from hypertext transfer protocol: //www. gmanews. tv/story/68224/Teves-orders-review-of-sin-taxes

Moffatt. M. ( 2008 ) . Price Elasticity of Demand. Retrieved June 17. 2008. from hypertext transfer protocol: //economics. about. com/cs/micfrohelp/a/priceelasticity. htm