Changes in Taxes/Subsidies

 

An increase in indirect tax (e.g. VAT) will raise the costs to producers. Less can be supplied at each price and the supply curve will shift to the left.

 

A subsidy is when a government gives money to an industrial sector. This reduces the costs of production to the producer. More can be supplied at each price and the supply curve will shift to the right.

 

Link to definition and more information about subsidies

 

 

Link to definition and more information about indirect taxes

 

 

 

 

6. The following statements relate to the supply of TVs. Where do you think the statements best fit on the table below?

 

Statements:

  1. The rate of VAT increases
  2. A government subsidy for TV producers is reduced
  3. Raw materials are bought from a new, cheaper supplier
  4. The cost of electricity to industrial users increases
  5. New machinery is bought which improves productivity
  6. Wage levels increase at a faster rate than improvements in productivity.

 

 

 

Click here for the answer to SAQ 6