dont know it
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Do they increase production costs e.g. making costs of raw materials more expensive, or, do they just reduce the incentive to supply more because a higher proportion of their profit will go the government as revenue?
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bm3school
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Yes, it will increase the cost of product and the employer will receive this increase tax from consumers indirectly.
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(Original post by bm3school)
Yes, it will increase the cost of product and the employer will receive this increase tax from consumers indirectly.
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Max&Mindset
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(Original post by dont know it)
Do they increase production costs e.g. making costs of raw materials more expensive, or, do they just reduce the incentive to supply more because a higher proportion of their profit will go the government as revenue?
Indirect taxation such as VAT on goods will shift the supply curve to the left, evidently increasing the price and reducing quantity supplied. The intuition behind this is that due to the higher price less will be demanded by consumers and so the equilibrium will be of a lower quantity, firms are unable to reduce the price to previous levels due to the cost of factors of production possibly exceeding this value. We can also see who bears the burden of the tax due to the imposition of the tax, as it reduces consumer and producer surplus. As demand becomes more inelastic the burden becomes greater for the consumer, for a perfectly inelastic scenario the entirety of the burden is accrued by the consumers, an example may include a good to where there are no substitutes so quantity never changes, an increase in price doesn't alter producer surplus as they are still earning the same amount, consumers are having to pay a higher price however.
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Max&Mindset
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(Original post by bm3school)
Yes, it will increase the cost of product and the employer will receive this increase tax from consumers indirectly.
You should distinguish between price and cost, price applies to the consumer, cost refers to the supplier. The tax will not change the cost of manufacturing the product it changes the price, also using the term employer instead of the supplier is misleading. The supplier does not receive any money in this case from taxation, the purpose of the tax is to give money to the government for greater flexibility within the economy.
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(Original post by TastyChicken)
Indirect taxation such as VAT on goods will shift the supply curve to the left, evidently increasing the price and reducing quantity supplied. The intuition behind this is that due to the higher price less will be demanded by consumers and so the equilibrium will be of a lower quantity, firms are unable to reduce the price to previous levels due to the cost of factors of production possibly exceeding this value. We can also see who bears the burden of the tax due to the imposition of the tax, as it reduces consumer and producer surplus. As demand becomes more inelastic the burden becomes greater for the consumer, for a perfectly inelastic scenario the entirety of the burden is accrued by the consumers, an example may include a good to where there are no substitutes so quantity never changes, an increase in price doesn't alter producer surplus as they are still earning the same amount, consumers are having to pay a higher price however.
Thank you.
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Alex2245
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The cost to producers increases because the tax causes material prices to increase. They will produce fewer goods.
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jpt4749
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Taxes imposed on producers will shift the supply curve upward to the left causing the quantity produced to decline. Consumers have to pay more to account for taxes while producers receive less after deducting from taxes. The loss in welfare leads to Deadweight Loss with reduction in consumer and producer surplus and part of them being transferred to tax revenue for government.

Producers tend to suffer more when the good is demand elastic when the proportion of tax burden placed on them will be significantly greater compared to consumers.
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