If the government is proposing a new law for tax by saying all the fruit juice shops has to pay a tax of Rs1.50 for every sale. So as to now analyse the supplier and buyer part in this has to be seggregated into three steps.
1. Does this law affects the supply or demand cure?
2. To check the variation of the curve?
3. To examine the way in which the shift affects the equilibrium curve?
Step 1:
In the above case, since the tax is not impossed on buyers there will not be any change in the demand curve. On the other hand the profit for the sellers actually reduces and thus makes an change in the supply curve.
Step 2:
Since the tax on sellers increases the cost production and selling, obviously the the quantity per sale will be reduced. Now when a customer comes to buy a juice is worth of Rs25, now the seller will make sure the quantity is of worth of 24.50. This is because, the seller has to pay 1.50 to the government and now there will be a change in the supply curve towards the left.
Step 3:
On moving to the equilibrium curve, the count of the number of juices goes down and obviously means that the buyers buy less. This actually portrays that the fruit juice market has come down.
Now on having an deep analysis when a tax is impossed, both the sellers(directly) and the buyers(indirectly) are paying the tax.
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