Question

Using diagrams and supply and demand concept, carefully explain the impact of each of the following on equilibrium price and quantity of certain products. Simultaneous increase in business taxes and an increase in consumer income for a normal good (other things being equal).

Answer 1

1) Increase in Business Tax

As a business tax is a tax on the supplier. The equilibirium price would increase, resulting in a decrease in the quantity supplied. Therefore it shifts the Supply curve leftwards. And there is a contraction of Quantity demanded on the same demand curve.

2) Increase in Consumer Income on Normal Good

As the income of a consumer increases the demand curve shift rightwards at the same price. Therefore it leads to an increase in quanitity demanded.