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

Economics - Essay Exampleonsuming them till they are in a position of not being equal to afford them or need some other external causes to prevent their usage sometimes people might even go beyond their competency to get hold of the commodities. In such cases, the government has to impose a very high tax on the particular item for the welfare of the association (George & Wilding, 1984). Thus, the main reason operating behind the imposition of high taxes on addiction items is the price inelasticity of demand (Baumol & Blinder, 2008). One such item of addiction is baccy 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 bear on nations have decided to impose a high tax on the same.When tax is imposed on a commodity, it results to an upward shift in the come out curve of the commodity but the demand curve remains unchanged. This is because, the tax in such cases are imposed in th e form of higher prices and therefore 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 bequeath buy lower criterion of a product from the wholesalers which subsequently lead to a fall 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 equilibrium 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 put 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 purpose. Firstly, it leads to a fall in come consumption so as to