Cambridge International as and a level Economics Ebook

SELF-ASSESSMENT TASK 
2.20
Use the information in
 Table 2.12
to draw a new 
supply curve (
S
1
). Explain what has happened to that 
supply curve – remember you are showing a decrease 
in supply. Draw in supply curve 
S
0
as well so that you 
can use it as the basis for your comparison.
Price of a 
‘standard’ PC (US$)
Quantity supplied per 
week – supply curve 
S
1
1,000
1,000
1,200
2,000
1,400
3,000
1,600
4,000
1,800
5,000
2,000
6,000
Table 2.12 
Specific tax: 
an indirect tax that is fixed per unit purchased.
Ad valorem
 tax:
 
a tax that is charged as a given percentage 
of the price.
KEY TERMS
60
Cambridge International AS Level Economics

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companies may seek to pass the tax on to the consumer 
in the form of higher prices. As such, indirect taxes 
oft en result in a decrease in supply. On the other hand, a 
relaxation of certain types of legislation or government 
subsidies can increase supply by encouraging fi rms to 
reduce prices for any given level of output. Government 
policy in agriculture may involve the release of stocks 
to calm the volatility of markets associated with a 
poor harvest.
SELF-ASSESSMENT TASK 
2.22
Refer to the supply curve 
S
0
in 
Figure 2.15
. What 
would happen to this curve if the government 
introduced:
a 
a tax of $100 per computer?
b 
a tax of 10% on the pre-tax selling price?
c 
legislation that raised companies’ costs by 20% on 
average?