chapter  11
Equilibrium Effects and Market Conditions
Pages 17

A n economic instrument has several effects. Consider a tax on a polluting input, which will directly affect input mix and technology in production, a direct effect which is often the main intended one. The tax also will have indirect effects: it makes the final product more expensive, and thus reduces demand, which is referred to as the output or output substitution effect. Finally, the tax raises revenue for the treasury.