Government policies similar to subsidies and taxation are determining the demand for different goods that are out in the market. Whenever the government has increased the tax rates, it results to the decrease of consumer’s purchasing power and the demand for commodities goes down too.
Highs & Lows
Every time that the government is reducing indirect tax, that’s the GST, then the cost of commodities is expected to go down and the demand for such increases and vice versa.
On the other hand, there are good examples of such like sugar, cigarettes, medicines, tobaccos and the likes in which demand is inelastic.
Therefore, changes in the tax rates on these goods will lead to lesser impact on demands.
The Good and Bad
Subsidies are actually grants that are given by governments to firms. Subsidies are reducing the market price of commodities, falling in price leads to expansion of demand for products. For instance, in the Indian government, it is providing subsidies on cooking gas to companies. Having said that, consumer has to pay lesser price for cooking gas compared to market price.
However, government is collecting taxes from the wealthy and rich. It is providing financial assistance to assist poor in form of subsidies. It’s among the methods in reducing gap between rich and poor.