Qualification > Commerce

need help in economics AS question

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twilight:
here's 1 more ..
i know that if the tax is imposed the supply curve wud shift to the left (so it can b either A or B )
The marking scheme shows the answer as A (that is .. the supply becomes more inelastic also)
why duz the elasticity change here?

Priya:
@twilight

There are 2 type of taxes:
(i) Ad Valorem taxes which add a certain percentage on price. (pivots the ss curve to the left)
(ii)Specific taxes which add a fixed amount of money onto costs. (shifts ss curve parallel to the left)

Refer to the attached diagrams

twilight:
ohhhh .. so do u mean that .. since its ad valorem .. then as the price rises the tax rises ?
thanks sweetyyyy

can i ask sum more questions?

Priya:
Yes, since it's a percentage... As price rises, the amount of tax imposed of the good rises, thought the percentage of the tax is still constant.

For example, a 10% tax on the good,
Price - 10, amount of tax - 1
Price - 12, amount of tax - 1.2
Price - 14, amount of tax - 1.4

The increase in tax shifts the ss curve further as opposed to a specific amount of tax.

You can ask more questions, though I cannot say for sure I'll know the answers...

twilight:
ohhh .. thanksss ..
am sure u'll b able 2 ..  ;) :-*
here .. i've attached it .. can u tell me how u approach the answer?

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