a) The interaction between demand and supply will affect the

market for different types of goods. GST is an indirect tax, which is

impose on goods and services in Singapore. Price elasticity of
demand measures that responsive of quantity demanded to a
change in price, ceteris paribus. This essay seeks to examine the
effects of GST on supply and how consumer expenditure will change
for consumers with different price elasticity.
With the increase in GST, supply curve will shift to the left due to an
increase in taxes, which will increase the marginal cost of
production.
From the diagram below, supply will shift leftwards from S0 to S1.
Price will increase from P0 to P1 and quantity demanded will fall
from Q0 to Q1. The change in consumer expenditure will depend on
the price elasticity of demand of the goods.
The good is price inelastic when a change in price will lead to less
than proportionate change in quantity demanded, ceteris paribus. A
good can be said to be price inelastic when are few substitutes
available. An example will be that of oil which is used in much
production process and no close substitutes available. A good is also
price inelastic if they habitually consumed. An example will be
cigarettes because of its addictive nature. Hence an increase in
price due to the increase in GST will lead to a less than
proportionate change in quantity demanded.
From the diagram below, supply shifts from S0 to S1 and prices
increases from P0 to P1. As the demand is inelastic, indicated by D0,
the suppliers are able to pass on the tax burden to the consumers.
Consumer expenditure is a product of price and quantity. Consumer
expenditure increases from.
The good is price elastic when a change in price will lead to a more
than proportionate change in quantity demanded, ceteris paribus. A
good may be price elastic due to proportionate of income spent on
it. An example will be expensive jewelry. An increase in price of
jewelry due to GST will lead to a more than proportional decrease in
quantity demanded, ceteris paribus. From the diagram, the demand
is elastic indicated by D1, suppliers will not be able to pass on the
increase in tax to consumers. Consumer expenditure decreased
from
b) There are normal goods where an increase in income will lead to
an increase in demand for such goods, ceteris paribus. Normal
goods are spilt into luxury and necessity goods. There are inferior
goods where an increase in income will lead to a decrease in
demand for such goods, ceteris paribus. This essay seeks to
examine how the combined effect of an increase in GST and rise in

income will affect the consumer expenditure on the different types

of goods.
Rise in income will cause the demand for normal goods to increase.
Examples of normal goods include oil and jewelry as mentioned
above. The demand curve will shift to the right, from D0 to D1 and
price will increase from P0 to P1. Equilibrium quantity will increase
from Q0 to Q1. Consumer expenditure is the product of price and
quantity and expenditure will increase.
The rise in income will cause the demand for interior goods to
decrease. Examples of inferior goods include pirated DVDs and
supermarket home brand products. The demand curve will shift to
the left, from D0 to D1 and price will fall from P0 to P1. Equilibrium
quantity will fall from Q0 to Q1. Consumer expenditure will decrease
from
Coupled with the effect of GST on consumer expenditure as
mentioned in a), the net effect on consumer expenditure for normal
goods which is price elastic will fall. The net effect on consumer
expenditure for normal goods, which is price inelastic, is
indeterminate. To determine the net effect, income elasticity of
demand will need to be considered.