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# Explain the likely effects of imposing indirect taxes on alcohol
- URL: https://www.a-level-economics-tutor.com/explain-the-likely-effects-of-imposing-indirect-taxes-on-alcohol/
- Published: 2026-09-05T14:53:21.000Z
- Updated: 2026-09-05T15:00:25.000Z
- Author: Jaisul Naik
- Tags: AQA 10 mark question

### AQA AS-Level Economics Paper 1 June 2022

**Extract E (lines 1–2) states: ‘alcohol has traditionally been viewed as a demerit good, subject to high indirect taxes’. Explain the likely effects of imposing indirect taxes on alcohol. (10 marks)**

An indirect tax is an additional cost of production imposed by the government on firms, and this causes the supply of alcohol to decrease. 

The overall effect of an indirect tax is an increase in the market price and a decrease in the equilibrium quantity of alcohol in the market. As an indirect tax increases firms' costs, they are willing and able to produce less units of alcohol at each given price. Therefore, there is a decrease in supply. This causes a contraction along the demand curve due to the rationing function, which causes the price to increase from p1 to p2 and the quantity to fall from q1 to q2, as shown in the diagram below.

![Indirect Tax diagram for A-Level Economics](https://storage.ghost.io/c/c4/66/c466eade-2ad5-4613-8010-7a8ffa8c352f/content/images/2026/09/image-7.png)

Indirect Tax diagram for A-Level Economics

Secondly, there is an increase in government revenue. This is shown by the shaded yellow rectangle and it is calculated by multiplying the tax per unit by the new equilibrium quantity. The diagram also shows that some of this is paid by the producer and some of it is passed onto the consumer (due to the change in price from p1 to p2).

Finally, there is a fall in consumer surplus and producer surplus. This is reflected in the pink triangle which shows the welfare loss due to the indirect tax. Consumer surplus is the difference between the price consumers actually pay compared to the highest price they are willing to pay. And, producer surplus is the difference between the lowest price producers are willing to sell alcohol for and the price they actually sell alcohol for.

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