Tax on Producers and Consumers

mind 1 radiation diagram 1. 1- A appraise income on Producers a) i) Equilibrium P strain and Quantity before tax 100-10Q = 20 +10Q ? 20Q = 80 ? Q = 4 When Q = 4, P = 60 ? Equilibrium outlay passables $60 and equilibrium metre is 4 million ii) Consumer sp are = ? x 4 x 40 = 80 Producer waste = ? x 4 x 40 = 80 iii) An efficient market occurs when total plain is maximized. This equilibrium of P = 60 and Q = 4 has maximized consumer and producer trim equally. It is at this point where the marginal hail of output equals marginal benefit.Question 1 cont. b) i) afterwards imposing a tax of $20, being levied on the producers, the wrong paying(a) by buyers is $70 and the expense received by sellers is $50 per kindly unit of stand fordering(a) phones sold at the reduced quantity supplied of 3 million. This is illustrated in figure 1. 1 with the slant in the supply plication from S1 to S2. ii) Consumer Surplus = ? x 3 x 30 = 45 Producer Surplus = ? x 3 x 30 = 45 iii) in t hat location is a accrue in the total surplus after the implementation of a tax on mobile phones.A substantial portion of the total surplus has been redistrisolelyed to government tax revenue, however, there is a deadweight loss. Marginal social benefits exceed marginal social cost, resulting in inefficiencies within the market for mobile phones. c) Expected Total Revenue = 3 x 20 = $60 million Expected Deadweight Loss = 2 ( ? x 1 x 10 ) = $10 million d) The distribution of real incidence is the enumerate of burden of a tax shared between the buyer and seller. This proposed tax shares the burden of the $20 equally between buyers and sellers.The distribution of real incidence on buyers is a $10 rise in the equipment casualty gainful on sellers is the $10 drop-off in impairment received for severally mobile phone. e) Elasticity of Demand = Ave. P x ? Q Ave. Q ? P = 65 x (-1) 3. 5 10 = -1. 857142857 ? Elasticity of Demand equals 1. 857 The Elasticity of engage is greater than o ne which means the pauperism for mobile phones is elastic. The percentage reducing in the quantity packed exceeds the percentage append in legal injury. This tax would mean as there is a 1% addition in price there is a 1. 57% diminution in quantity. at that place is overly a decrement in the total revenue as the price amplifications. Question 2 bare-assspaperwoman Kilogram of rice Thailand 100 5 India 90 3 prognosticate 2. Thailands Production Possibility landmark get word 2. 2- Indias Production Possibility Frontier Question 2 cont. Printer Kilogram of Rice Thailand 36 1080 India 40 1800 c) Points seen in epithet 2. and Figure 2. 2 d) Thailands opportunity cost of producing 1 newswriter is 20kgs of Rice Thailands opportunity cost of producing 1 Kg of rice is 1/20th of a printer Indias opportunity cost of producing 1 printer is 30kgs of rice Indias opportunity cost of producing 1kg of rice is 1/30th of a printer Thailand should specialise in the toi l of printers as it has a high comparative advantage. This has been achieved as there is a press down opportunity cost in the resultion of printers in Thailand compared to India. Printer Kilogram of Rice Thailand 90 0 India 0 3000 Specialisation has rent to an increase in the combined output for both countries. Thailand has increase its printer output by 54 and India has increased rice output by 1200kgs. ) Consumption bundle after trade Printer Kilogram of Rice Thailand 42 1200 India 48 1800 Consumption points after trade for countries Thailand and India are labeled H and N in Figure 2. 1 and Figure 2. 2 respectively. Trade has benefited to both countries.Thailand has increased their consumption bundle with an increase in kilograms of rice from 1080 to 1200 and increased its computers from 36 to 42. India has increased their consumption bundle with their increase in printers from 40 to 48. Question 3 Figure 3. 1- Nuclear electrical nada Market a) The equilibrium point e1 is find outd by incompetent outcomes of a aid. The pension brings about overproduction, represented by the quantity Q1. This overproduction lowers the price, or esoteric costs of the clean up for the company. Marginal costs are increased as the higher production forces inefficient resource allocation. ) If the subsidy is take away there will be an overall increase in the readiness within this market. The supply will light, illustrated in Figure 3. 1 with the leftward displacement in the supply veer from S1 to S2. The private cost of atomic verve production would reflect the square(a) cost of production, including disaster clean-ups. The increase in price can also be seen in Figure 3. 1 with the price from P1 to P2. there would be a consequent flow in the quantity of thermonuclear energy and stop the inefficient overproduction and customs duty of contain resources. ) If the government imposes an amends levy tax on the superpower company the cost of a nuclear cl ean-up will be higher than the cost with a clean-up subsidy but will be lower than costs incurred if the power company had to absorb the entire financial burden. The insurance levy would create a new supply curve, illustrated in Figure 3. 1 with S3, as the reduced cost of a clean-up allows for greater nuclear energy production at a lower price. The quantity increase is seen with the movement from Q2 to Q3 and the simplification in cost of production is seen with the movement from P2 to P3. Question 3 cont. ) The three equilibriums achieved vary in the burden sharing and aptitude of a subsidy, a tax and no intervention in the nuclear energy market. Government intervention with the clean-up subsidy (represented with e1) reduces private costs of production and clean-up. This brings about inefficiencies as the true cost of production, including clean-ups after disasters, is not reflected in price of P1. The reduced cost in this scenario also leads to overproduction and an inefficient quantity of Q1 supplied. The or so efficient market where marginal social benefits equal marginal social costs is shown at the equilibrium point e2.The true cost of production including negative externalities is counted for and there is a subsequent increase in price, as the company passes on costs to consumers, with the removal of a clean-up subsidy (seen with the increase from P1 to P2). The increase in price leads to a decrease in the quantity of nuclear energy demanded and a leftward shift in the supply curve from S1 to S2. The imposition of an insurance levy has decreased the price of a nuclear disaster clean-up as the power company is nowadays relieved of part of the entire financial burdens. This decrease in the price of a clean-up is seen in Figure 3. with the decrease in price from P2 to P3. There is an increase in quantity demanded, seen with the increase from Q2 to Q3 and there is an increase in the supply of nuclear energy production. This new equilibrium e3 is not t he most efficient point in the nuclear production market but allows for an increase in demand of the most cost resultive energy generation The point e3 would be most beneficial to society as there is an increase in efficiencies with the removal of a government clean-up subsidy yet the power company doesnt wear the entire financial burdens of further nuclear disaster clean-ups.There is an increase in the price of nuclear production, however, this point P3 Q3 represents a fairer and more cost-effective way of reducing the costs of future nuclear disasters as less responsibility has fallen on the producers of this energy. Question 4 a) Figure 4. 1 iii) A population decrease will decrease the demand of this wanting(p) superb. This is illustrated in Figure 4. 1 with the demand curve shifting to the left from D1 to D2. An increase in the productivity increases the output quantity using the same derive of input.This increase in supply is seen with the supply curve shift to the right f rom S1 to S2. The combined decrease in demand and increase in supply has reduced the price of this good from P1 to P2. A new equilibrium, e2, has been organise at the points P2 Q2. Question 4 cont. b) Figure 4. 2 iii) As incomes increase the consumption of inferior goods decrease. This decrease in demand is shown in Figure 4. 2 with the demand curve shifting to the left from D1 to D2 to form the quantity demanded Q2. The increased price of inputs and thence production costs has reduced the production productivity.This loss of productivity is illustrated through with(predicate) the leftward shift of the supply curve from S1 to S2. A new equilibrium has been organize at the points P2 Q2. Question 4 cont. c) Figure 4. 3 iii) The demand for inferior goods increases as incomes decrease. This increase in demand is illustrated in Figure 4. 3 with the rightward shift of the demand curve from D1 to D2 and the quantity demanded increase from Q1 to Q2. As the outcome of firms in the marke t decrease the price competitiveness influence weakens. less(prenominal) competition allows for an increase in the price, seen in the shift from P1 to P2.The combined influence of an increase in quantity demanded (Q1 to Q2) and increase in price (P1 to P2) has formed a new equilibrium point, e2 (P2, Q2), with the shift in the demand curve to the right. Question 4 cont. d) Figure 4. 4 iii) There is a decrease in demand of the inferior good as the consumer preference for this good decrease. The product is used together with a complement product. An increase in the price of a complement product will also decrease the demand of the inferior good. This decrease in demand is illustrated in Figure 4. with the change from Q1 to Q2 and the shift of the demand curve to the left from D1 to D2. This creates a new equilibrium point e2 at the points P2 Q2. Question 4 cont. e) Figure 4. 5 iii) The increased price of a substitute in consumption increases the demand of the inferior good, illustrated in Figure 4. 5 with the demand curve shift to the right from D1 to D2. The supply quantity of the inferior product will decrease as the price of a substitute in production increases. There is an increased ability for the supplier to raise profits from the higher price of the substitute while using the same resources.This tendency has therefore decreased the supply of the inferior goods, illustrated with the left of the supply curve to the left from S1 to S2. Figure 4. 5 shows how suppliers are only will to supply the same quantity if there is an increase in price (from P1 to P2). The increase in demand and decrease in supply of this inferior good has resulted in a new equilibrium point e2 at points P2 and Q2. Question 5 a) There is a tendency for consumers to buy products they know which are used by many other people as it influences customer perception of reliability and appraise.If a celebrity endorses a product it shows the possible customer how the product has already reached a substantial audience of consumers who are satisfied and willing to show others. b) Inconsistency in consumer behavior can be rationalized infra the idea of the endowment effect. The endowment effect makes a person value a personal good higher than it costs to buy. Molly has shown this effect as she is unwilling to accept $50 for her poster even though she knows it costs less than $50 for a replacement. c) Figure 5. 1- Maxs Budget Line i) Price of Hotdog =$1 Price of hamburger =$2 ii) Slope PHAMQHAM + PHOTQHOT = Y ? $2QHAM + $1QHOT = $8 ? QHAM + ? x QHOT = 8/2 ? QHAM = 4 -1/2QHOT ? Slope equals -1/2 There is a negative peddle (-1/2) of the figure line. The budget line and the Production Possibility Frontier (PPF) are similar as the curve of each represents the maximum quantity of ii products which can be obtained using limited resources. Maxs budget line shows the maximum combination quantity of two attainable products with his limited income while the PPF shows the maximum output of two products with a limited amount of input.