This case flyer introduces the participants/students to three types of Elasticity - Price, Income and Cross Elasticity - along with Incidence of Taxation. The base article1 from The Economic Times estimates how the newly imposed service tax of 14% would impact three different types of services - Luxuries, Basic Services and Financial Services. This case flyer lets the participants to understand how different types of services behave differently to changes in prices, income and the prices of related goods (complements and substitutes). When a service tax is imposed the burden has to be borne either by the consumer (by way of increased prices) or the producer (by way of reduced margins) and this case flyer can be used to understand the accompanying incidence of taxation when a service tax is levied.

1. SERVICE TAX HIKE:
ELASTICITY OF DEMAND AND INCIDENCE
OF TAX
This case flyer introduces the participants/students to three types of Elasticity – Price, Income
and Cross Elasticity – along with Incidence of Taxation. The base article1
from The Economic
Times estimates how the newly imposed service tax of 14% would impact three different types
of services – Luxuries, Basic Services and Financial Services.This case flyer lets the participants
to understand how different types of services behave differently to changes in prices, income
and the prices of related goods (complements and substitutes). When a service tax is imposed
the burden has to be borne either by the consumer (by way of increased prices) or the producer
(by way of reduced margins) and this case flyer can be used to understand the accompanying
incidence of taxation when a service tax is levied.
Pedagogical Objectives
• To understand the three types of elasticity – Price Elasticity of Demand, Income Elasticity
of Demand and Cross Elasticity of Demand – in the case of three types of services – Luxuries,
Basic Services and Financial Services
• To examine the impact of incidence of tax when a service is levied based on the respective
elasticity of the services
• To understand the concepts of derived demand and autonomous demand and how the
three types of elasticity play out
Case Positioning and Setting
The case flyer can be used in MBA or Executive MBA or Executive Development Programs,
for the following module/topic:
• Elasticity of Demand and Applications –To understand the various kinds of elasticity and
the incidence of tax
ABSTRACT
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1
“Service Tax Hike to Have Marginal Effect On Household Expenses”, The Economic Times, June 3rd
2015, page 13