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Question: Show what would happen in a market if the government placed a tax on a normal good. Who would bear the burden of the tax, and how would the burden be reflected in supply and demand conditions? Explain why there is a tendency for taxes to have social costs, and why, even so, they may still be justifiable.
Answer: Tax revenue is the biggest source of income for any government. Higher the tax revenue for the government, results in more funds available for it to spend and less for firms and individual consumers. Hence, the implications and the consequences of tax are a major issue in microeconomics. Individuals and the businesses are the general source of tax revenues for the government in an economy. There are two types of taxation, which the government can use: Direct and Indirect Taxation. Direct tax is that tax which is levied on income, either of individuals as income-tax or on businesses such as corporation tax....(short extract)
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Details: Mark: 70% | Subject: Economics | Course: Economics | Level: A-Level | Year: Not applicable | Document type: Essay* | Words: 1618 | References: Yes | Date written: September, 2004 | Date submitted: March 31, 2009 | Essay ID: 1157
