CAIE A-Level Economics AS 3.2.1 Indirect Tax Impact Incidence Questions

Practise explaining how indirect taxes shift supply, change equilibrium and incidence, and evaluating effects on consumers, producers and government.

Exam points

Explain how indirect taxes shift supply, change equilibrium and incidence, and evaluate effects on consumers, producers and government.

[Maximum number: 1]

The diagram shows the effect of an indirect tax imposed on cigarettes. The market is initially in equilibrium at point X.

Which area represents the incidence of the tax on consumers?

$\mathrm{P}_{1} \mathrm{ZYP}_{2}$

$\mathrm{P}_{1} \mathrm{ZWP}{ }_{\mathrm{e}}$

$\mathrm{P}_{\mathrm{e}} \mathrm{WYP}_{2}$

$\mathrm{P}_{\mathrm{e}} \mathrm{XZP}_{1}$

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