Question

Increase in demand is caused by
a. Increase in tax
b. Higher subsidy
c. Increase in interest rate
d. decline in population

Answer 1

Increase in demand is caused by increase in tax. Increase in tax is main factor that influences the demand curve.

If the spending of the government increases so does the aggregate demand of the consumers. But sometimes taxes are also imposed on the consumer goods in order to decrease their demand.

If the government wanted less consumption of harmful substances like alcohol and tobacco he would definitely be imposing taxes on those two items specifically to decrease the demand among the alcoholics and the smokers.