In 2007 the rate of Goods and Services Tax (GST) in Singapore rose from 5% to 7%. Incomes also increased in that year. Explain the likely effect of this change in GST on expenditure by consumers on different types of goods.                      

  1. Introduction
  2. Define
  3. Total revenue
  4. GST
  1. Development
  2. Impact of increase in GST from 5% to 7%:

Increase in GST à fall in supply illustrated by a leftward shift of SS (non-parallel shift)

Illustrate with a diagram. Explain diagram.

Eqm price of goods increase and eqm qty fall, cp.

The impact on total expenditure (TR)  may rise or fall depending on the PED of goods.

  • Consider impact when goods have PED > 1

Goods with price elastic demand i.e. PED >1.

E.g. Luxury goods such as consumer durables namely cars, laptops have many substitutes.  A rise in price will lead to a more than proportionate fall in the qty dd, c.p. Explain why.

  • Consider impact when goods have PED <1

Goods with price inelastic demand i.e. PED < 1. Necessities, goods with few close substitutes.  E.g. rice, cigarettes, insulin for diabetic. Explain why

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