¦ imposed by government on the sales of goods and services Ad valoremper-unit Goods are taxed at a pre-set percentage of its value e.g. sales tax of 60% imposed on wine sold in HK Goods are taxed according to its quantity transacted e.g. sales tax of $0.735 imposed on a cigarette sold in HK What is sales tax?

Total tax burden per-unittax Consumers’ tax burden Producers’ P1 P2 Q1 Q 0 P($) Total tax burden = Per-unit tax x _____ Quantity transacted Q2 Consumers’ tax burden = change in price x ______ Quantity transacted Producers’ tax burden = the remaining amount Consumers’ burden ____ Producers’ burden (Ed ____ Es) new < > S1S2 Sales tax with elastic demand and inelastic supply [i.e. Ed 1, Es 1] D > <

Total tax burden per-unittax Consumers’ tax burden Producers’ P1 P2 Q1 Total tax burden = Per-unit tax x _____ Quantity transacted Consumers’ tax burden = change in price x ______ Quantity transacted Producers’ tax burden = the remaining amount Consumers’ burden _____ Producers’ burden  Ed___Es new > < Sales tax with inelastic demand and elastic supply [i.e. Ed 1, Es 1] 家華 S1 S2 Q2 D Q 0 P($) < >

Before imposition of sales tax P1= =Q1=

After imposition of sales tax --- Per-unit tax = $30 P2==Q2 Consumers’ tax burden = $20 x160 $3200 Total tax burden = $30 x160 $4800 Producers’ tax burden = $4800 -$3200 $ P1= =Q1= 140   Ed Es <