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Ad Valorem Tax Form

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60 seconds on ADD valorum taxes now an ad volume tax such as vat for example has the same effect as normal tax it causes a shift in the supply curve but this time the effect is to cause a pivotal inward shift in Supply as shown this is because the tax is a percentage let's say 20 of the unit cost of supplying the product so therefore a good that could have been supplied for 50 pounds well if we add 20 vot onto that it now costs 60 pounds 10 pounds of which is tax but a different good that might cost 400 pounds to supply the same percentage tax will now cost 470 because we've added 70 pounds of tax therefore an ad valorem tax the key thing here in the exam is it causes a pivotal change in the supply curve the tax goes up the higher the price of the product

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