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It is expected that replacement of all existing taxes on good X by the proposed single Goods and Services Tax (GST) will bring down overall tax on good X substantially. Explain its likely chain of effects on price and quantity of good X. Use diagram.

Answer» <html><body><p></p>Solution :With <a href="https://interviewquestions.tuteehub.com/tag/decrease-946104" style="font-weight:bold;" target="_blank" title="Click to know more about DECREASE">DECREASE</a> in overall taxes, keeping other factors constant, <a href="https://interviewquestions.tuteehub.com/tag/total-711110" style="font-weight:bold;" target="_blank" title="Click to know more about TOTAL">TOTAL</a> supply in the market willl increase due to reduction in the cost of production. It will <a href="https://interviewquestions.tuteehub.com/tag/lead-540361" style="font-weight:bold;" target="_blank" title="Click to know more about LEAD">LEAD</a> to <a href="https://interviewquestions.tuteehub.com/tag/excess-978535" style="font-weight:bold;" target="_blank" title="Click to know more about EXCESS">EXCESS</a> supply. This leads to <a href="https://interviewquestions.tuteehub.com/tag/competition-423521" style="font-weight:bold;" target="_blank" title="Click to know more about COMPETITION">COMPETITION</a> among sellers, which reduces the price. Fall in price leads to decrease in supply and rise in demand. These changes continue till supply and demand become equal at a new equilibrium price. As there is an increase in supply only, equilibrium quantity will rise, but equilibrium price will fall.</body></html>


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