Govt policies

An indirect tax is levied on the producer

GST is a direct tax

Corporate tax is a direct tax

A specific tax is an indirect tax

Direct tax shifts the supply curve

A specific tax shifts the demand curve

GST is an ad valorem tax

P2-P1 is the amount of tax paid by the consumer at Q2

P3 is the new price paid by the consumer after the ad valorem tax is levied

P3 is the final price received by the producer after the ad valorem tax is levied

Edusave is a form of an indirect subsidy

All subsidies are desirable

Cuts in rental subsidies to retailers raises the cost of production

CDC voucher is a form of a direct subsidy

Assuming a normal good, an increase in income causes demand to increase and eqm price to rise above P

An unfavourable change in taste and preferences causes demand for the good and price to fall between P and Pmax

A bumper harvest for wheat causes the SS of wheat to increase such that eqm price falls below Pmax

Government monitoring and policing is a very strong deterrent against black marketeers

To ensure farmers receive a minimum level of income

To ensure producers produce essential goods

To ensure basic necessities remain affordable

To allow producers to maximise profits

It must be set above the market equilibrium price for it to be effective

It causes a shortage

Government may have to step in to buy up excess stocks

It reduces incentives for producers to produce

to ensure prices of essential goods remain affordable

to help producers maximise profits

to physically limit production

to help alleviate shortages in the market