... and services such as VAT in UK. The implication of government levying the tax on a normal good is a case of an indirect tax. Normal good is a good for which, when income rises the demand for product also rises (positive income elasticity). In order to examine the burden of a tax placed by the government on a normal good, we have to look at several demand/supply situations. When a tax is imposed on any good or service, it affects the supply of the good/service. The supply of the product decreases as the cost of supplying increases, hence increasing the price of the good and a fall in the quantity demanded. The equilibrium will change from 'e' to 'e`', price will rise from 'p' to 'p`' while the quantity demanded will fall from 'q' to 'q`'. It could be showed by the following diagram: As mentioned earlier, the determination of the ...

See this essay or coursework document in full right now