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Economics Help

Hi, I'm struggling to explain why demand pull inflation increases when indirect taxes increase. Could someone please help

Thanks
An increase in indirect tax will reduce demand pull inflation because consumers will spend less as the good is more expensive (due to VAT) and so consumer expenditure (C) decreases which is a component of AD so AD decreases which causes the price level to drop from P1 to P2

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Original post by martinnmartin
An increase in indirect tax will reduce demand pull inflation because consumers will spend less as the good is more expensive (due to VAT) and so consumer expenditure (C) decreases which is a component of AD so AD decreases which causes the price level to drop from P1 to P2

Posted from TSR Mobile


Thank you
Its when prices are really low, lets say inflation rates were reduced, demand increases because consumers real income increases meaning they are able to buy more. This causes an outward **** of the AD, because consumption increases and consumption is a component of AD, as a result there is an increase of the price level. Demand Pull inflation :smile:
does anyone know how the answer is A to this question?

its a multiple choice question. Its question 12 from ECON1 june 13
sddadad.docx162.2KB
Original post by GCSEgirl13
does anyone know how the answer is A to this question?

its a multiple choice question. Its question 12 from ECON1 june 13


The consumer burden of a tax is represented by the change in price from 6-9 and the new quantity of 50, so that is 3 × 50

The producer burden is the change in price from 5 to 6 times the new quantity so 1 × 50

http://www.economicsonline.co.uk/Competitive_markets/Tax_incidence.html

The link should help explain it
To help you out, take a look at the attachment.

Hope it helps :smile:
sddadad.docx170.1KB
Thank you so much, thats really helpful

would anyone be able to tell me why B is the answer to this?
hhhhhhh.docx177.4KB

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