How do taxes affect supply and demand?
The law of supply and demand demonstrates the relationship between prices, supply and demand. When taxes go up or down, there can be a direct effect on supply and demand in some cases.Supply and DemandThe demand for a product or service is the amount consumers are willing to pay at a certain price. The supply for a product or service is the amount that producers are willing to manufacture at a given price.Inelastic DemandIf the good or service being produced has an inelastic demand, there would be no change in supply or demand when the price increases due to taxes, according to the website Investopedia. When a product or service has an inelastic demand, people have no or very few alternatives. Examples include cigarettes and alcohol.Elastic DemandElastic demand for a product means there will be a change in supply and demand because of the price increase due to the increase in taxes. When people have alternatives, demand will decrease and supply will increase.ConsiderationsWhen taxes in
