gcse economics - demand and supply - tax, subsidies and the supply curve

TAX

A charge placed on the production of a good and service by the Government. For example petrol is taxed heavily by the Government

A tax will increase the cost of production to the producer. It is makes it more expensive to produce

It is likely that the producer will produce less therefore the supply curve shifts to the left. It is also likely to increase the cost of the product

If people are really keen to buy the product (price inelastic) demand will stay fairly high. This often happens with alcohol, petrol and cigarettes

SUBSIDY

This is a payment of money by the Government to a producer in order to encourage them to produce or supply a certain good or service. For example an important bus route

A subsidy will reduce the cost of production to the producer. It makes it cheaper to produce.
It is likely that the producer will be encouraged to produce more therefore the supply curve will shift to the right . It is also likely to decrease the cost of the product.