Answer to Question #116969 in Macroeconomics for Muhammad

Question

A market for electricity is in equilibrium in bangladesh at a point where both supply and demand curves intersect each other. If the following events ( price factors or non price factor of demand or supply) take place into the market of electricity then how it will effect equilibrium point, equilibrium price and equilibrium quantity of electricity in bangaldesh. Use graphical representation for answer your question. Label and interpret each daigram

1.if proportion of general sales tax (GST) on electricity is increased by the govt. of bangladesh

Answer 1

The exercise of tax by the government will also lead to suffering to the customer. the implementation of the tax by the government, increases the price a buyer pays, which will lead the customer to buy and use less of the goods. A tax causes consumer surplus and producer surplus (profit) to fall.

The figure below showed us the effect of GST on electricity. The diagram shows the demand curve and supply curve for A. The X-axis shows quantity demanded and supplied of A whereas the Y-axis shows the price of A. 

Thus the imposed tax will shift the supply and demand curve to the left. The supply curve S1 moves to supply curve S2. Also, before the imposition of the tax, the equilibrium point is seen at point M, and the equilibrium quantity is QA while the equilibrium price is at PA. In the condition where the government imposed a tax on the goods, the equilibrium point shift to point M1 thus increase the equilibrium price to QB and decrease the equilibrium quantity to QB. 

The diagram has clearly shows that an increased in GST, will lead to an increase in the equilibrium price and fall in the equilibrium quantity.