Economics

Name: tutor2u
Address: Boston House, 214 High Street, Boston Spa, West Yorkshire, LS23 6AD, United Kingdon
Telephone: 0844 800 0085

Explore

Blog Reference library Collections Shop

Exam Technique Advice

VAT Changes (Chain of Analysis)

Level:: AS, A Level, IB

Board:: AQA, Edexcel, OCR, IB, Eduqas, WJEC

Share:

In this short revision video we build a chain of reasoning on this question. Explain how a fall in the rate of VAT might affect businesses and consumers.

Chains of Reasoning: A Fall in VAT

Key notes

VAT is an indirect tax on suppliers in a market. The standard rate of VAT in the UK is currently 20% although there are lower rates. A cut in VAT is an expansionary fiscal policy.
A fall in the standard rate of VAT to say 15% would effectively mean a fall in costs for many suppliers. They might choose to pass this on in reduced retail prices.
If prices of goods and services fall, then the real income of consumers will increase - people will have more discretionary income to spend and therefore AD will rise.
Some retailers might choose to take advantage of a lower % rate of VAT by keeping their prices constant and making higher profits.

Share:

Our subjects

Explore

Contact

Boston House,
214 High Street,
Boston Spa,
West Yorkshire,
LS23 6AD

Tel: +44 0844 800 0085