Taxation

Taxes are money being placed on goods, services and income by the government.

Indirect tax a sort of tax being placed on goods and services by the government in order to reduce or increase on the price.

If you want to reduce the high price for a certain good, you put taxes on the firm for each good it produces.

For example, eggs may rise to $99 due to the high demand and how inelastic it is, the government then set an indirect tax on the company for each egg it produces, in order to decrease the price.

However, if you want to increase on the goods or services in order to decrease the demand, you insert indirect taxes in that good in order to decrease social benefits.

Such as smoking for instance, the government can introduce taxes on cigarette per pack in order to decrease the willingness of people wanting to buy it, to decrease second hand smoke polluting people’s lungs; and that, is a solution to market failure.