DIPLOMA IN BUSINESS STUDIES

ABBE3033 BUSINESS ECONOMICS

TUTORIAL 2: Taxes

Question 1 ( 2020/21)

(a) Explain how elasticity of demand and supply affects the tax burden when the government
decides to impose taxes on a good. (4 marks)

Question 2 ( September 2016/17)

(a) Due to rising prices of products, the government wants to help consumers by reducing
consumer’s tax burden.

In the following situations, explain briefly which good should the government tax:

(i) The elasticity of demand for Good X is inelastic whereas the elasticity of demand for
Good Y is elastic. (3 marks)

- The government should tax Good Y. It is because the burden of a tax falls more
heavily on the side of the market that is less elastic. The elasticity of demand for Good Y is
elastic, which means the supply is less elastic. So, the consumer’s tax burden is smaller
than the seller.

(ii) Good N is a luxury good whereas Good O is a necessity good. (3 marks)

- The government should tax Good N. It is because the burden of a tax falls more heavily on
the side of the market that is less elastic. Good N is a luxury good and the elasticity of
demand for luxury goods is more elastic, which means the supply is less elastic. So, the
consumer’s tax burden is smaller than the seller.

Question 3 ( January 2014/15)

(b) The government has decided to levy a tax on all buyers of a particular product.

Examine the effects of the tax on the following:

(i) Price paid by the customers; (2 marks)

(ii) Price received by the sellers; and (2 marks)

(iii) Tax burden borne by buyers. (2 marks)

(c) Illustrate with the Laffer curve diagram how the size of a tax can affect tax revenue collected by
the government. (4 marks)

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Question 4 (April 2013/14)

(b) The government has decided to increase the taxes to be paid by sellers of a particular product.

Examine the effects of the tax on the following:

(i) Price paid by the customers; (2 marks)

(ii) Price received by the sellers; and (2 marks)

(iii) Tax burden borne by sellers. (4 marks)

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