0 Q2 Q1 Quantity
There are many reasons for government to place higher tax rates on products such as petrol and cigarettes because the government tends to impose sales taxes to increase revenues, and to reduce consumption. Higher tax also would act as an incentive to reduce the pollution caused by certain products such as petrol and cigarettes. As a from the diagram above, the demands for the products have been decreased from Q1 to Q2of quantity at the products prices P1 to P2, increasing the taxes will lead to a fall in demand, although this may only be a small effect because the demand is inelastic for the
There are many reasons for government to place higher tax rates on products such as petrol and cigarettes because the government tends to impose sales taxes to increase revenues, and to reduce consumption. Higher tax also would act as an incentive to reduce the pollution caused by certain products such as petrol and cigarettes. As a from the diagram above, the demands for the products have been decreased from Q1 to Q2of quantity at the products prices P1 to P2, increasing the taxes will lead to a fall in demand, although this may only be a small effect because the demand is inelastic for the