gcse economics - demand and supply - tax, subsidies and the supply curve
TAX
A charge placed on the production of a good and service by the Government. For example petrol is taxed heavily by the Government
A tax will increase the cost of production to the producer. It is makes it more expensive to produce
It is likely that the producer will produce less therefore the supply curve shifts to the left. It is also likely to increase the cost of the product
If people are really keen to buy the product (price inelastic) demand will stay fairly high. This often happens with alcohol, petrol and cigarettes
SUBSIDY
This is a payment of money by the Government to a producer in order to encourage them to produce or supply a certain good or service. For example an important bus route
A subsidy will reduce the cost of production to the producer. It makes it
cheaper to produce.
It is likely that the producer will be encouraged to produce more therefore the
supply curve will shift to the right . It is also likely to decrease the cost
of the product.
These GCSE Economics revision notes have been kindly provided by Peter Davies of Mill Hill School, Ripley Keep Up-todate with your GCSE Economics - Subscribe Free to Economics in the News by Email
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