StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...
Free

Economics and Development - Assignment Example

Cite this document
Summary
The paper "Economics and Development" is a wonderful example of an assignment on macro and microeconomics.Taxation is one source of government revenue, there exist two types of taxes which are direct taxes and indirect taxes, direct taxes are those taxes that are imposed directly on products or even personal income tax…
Download full paper File format: .doc, available for editing
GRAB THE BEST PAPER98.4% of users find it useful

Extract of sample "Economics and Development"

Taxes: a) Based on the information provided, advise the Minister which one of the two products she should tax. Explain and justify your advice. Taxation is one source of government revenue, there exist two types of taxes which are direct taxes and indirect taxes, direct taxes are those taxes that are imposed directly on products or even personal income tax. Indirect taxes are taxes imposed on good and services. When a direct tax is imposed then both the sellers of the products and the buyer faces the burden of tax. On the decision to decide which product to impose the tax we will have to consider the incidence of tax and this will be determined by the elasticity of demand. Because the country has no indirect tax then that’s why the indirect tax is preferred, the effect of an indirect tax on a good is demonstrated below: When the tax is imposed on the seller then the price rises and this is shown in the diagram where the price moves from P to P+T, these price increase shift the supply curve upwards from supply curve 1 to supply curve 2 as shown above. When we have perfect inelastic demand curve then the tax burden is wholly transferred to the buyer, however if we have perfect elastic demand curve then the tax burden is to the seller or producer. Concerning supply when we have perfect inelastic supply curve then the tax burden is to the seller, and when we have a perfect elastic supply curve then the tax burden is to the buyer. A tax will lead to a reduction in the producer surplus and at the same time the consumer surplus, further the tax also results to dead weight loss, the diagram below shows the consumer surplus and the producer surplus: From the above diagram it is clear that the producer surplus is reduced and also the consumer surplus, the loss in consumer surplus and producer surplus goes to the tax and also the dead weight loss. Therefore a tax will lead to a loss which is referred to as the dead weight loss. The dead weight loss is the value that is lost as producer surplus and consumer surplus and also it is not collected by the government as tax. In our case we have two good to consider: bilos and cigarettes, the elasticity of demand for bilos is 2.00, while for the cigarettes the price elasticity of demand is equal to 0.05. Given the elasticity levels then it is clear that bilos have a higher elasticity level and this means that a change in their prices by imposing a tax will reduce the demand by a very large quantity. For the cigarettes the elasticity level is lower and therefore an increase in price will not reduce demand by a large margin. The diagrams below show the effect of a tax on the two goods: From the above diagram it is clear that when the tax is imposed on either of the goods the level of price will raise and the supply curve shifts upward, the diagram assumes that the price for both goods is equal and that the tax imposed increases the price to the same level. The demand curve bilos is elastic while that of cigarettes is inelastic, therefore if we choose the bilos to impose the tax the incidence of tax is that the burden will be both to the producer and the customers, however if we choose the cigarettes the greatest burden will be on the buyers. The best option therefore will be to impose a tax on cigarettes. Cigarettes are luxuries as compared to the bilos which are more productive. The other reason why we would choose the cigarettes is that a price increase will not affect the demand for them by a greater degree as compared to the bilos. The other reason is the issue of incidence of tax, for the cigarettes the greater tax burden is to the buyers and for this reason we will achieve higher revenue without affecting the demand in the market. For healthy issues this tax imposed on cigarettes will be viewed as a way in which we are discouraging people to smoke and therefore the decision to impose tax on cigarettes will not be viewed negatively by the population. From our earlier discussion about the existence of an inelastic demand curve and an elastic demand curve it is clear that when we impose a tax on a perfect elastic demand curve then the seller pays for the tax burden, when the tax is on a perfect inelastic demand curve then the burden is to the buyer. An elastic demand curve is that whose slope is equal to 0, for an inelastic demand curve the curve is a vertical line and therefore given that the two goods where Bilos have an elasticity level of 2.00 and that of cigarettes is equal to 0.05 it is clear that for the Bilos the burden will be high on the sellers than to the buyers and that for the cigarettes the tax burden will be high on buyers than for sellers. Further the dead weight loss in the cigarettes is lower than the loss in the Bilos tax. Therefore it would be advisable to tax the cigarettes instead of the Bilos. For these reason therefore the proportion of tax collected with regard to the decline in producer and consumer surplus is higher than when the Bilos are taxed, this is because the dead weight loss when we tax the Bilos is higher than when we tax the cigarettes. b) The decision to impose the indirect tax may still be unpopular with consumers and/or suppliers, depending on which product is taxed; the Minister needs to be prepared for any potential negative political reaction. For both products, advise the Minister where potential negative reaction to the tax may come from. The decision to impose taxes on products may result to negative reactions, when taxes are imposed on a product it is likely that the products demand decreases and as a result the profits obtained by the producers of these products will decline due to low demand that leads to low sales. Tax on Bilos: Bilos are used in almost all offices, schools and colleges, an increase in their price will lead to a negative reaction by almost the entire population because every other person uses and purchases Bilos. As a result of the tax on Bilos therefore the whole population will term this tax as unpopular. The other negative reaction will come from the producers of the Bilos, the producers will experience a decline in sales level and therefore they will record lower profits. The lower profits will lead to the companies wanting to cut off on expenses by laying off workers, therefore in this case there will be a negative reaction that will result from the companies and also the laid off workers from these companies as a cost reduction measure. The other issue is that Bilos, papers and books are complementary goods, when the price of Bilos rise and their demand rise it is highly likely that the demand for its complementary will also decline. For this reason therefore there will be a negative reaction coming from the producers of books and papers regarding this tax. The decline in demand for papers and books will lead to a decline in the profits for the producers of these products and as a result there will be a rise in unemployment as a result of the increased lay off of these companies wanting to cut on the cost of production in order to maintain high profits. Tax on cigarettes: When taxes are imposed on cigarettes the prices will rise, however because the elasticity of demand in this case is low the demand will not decline at the same rate as that for the Bilos, therefore the prices will rise and demand will fall, smokers will react to the price increase while in the same case the producers will experience a decline in profit and therefore they will still have a negative reaction to the tax. Unemployment will rise and therefore this will be an unpopular tax imposition by the government, the unemployment will be caused by the cigarette producing companies whereby they will lay off workers in order to maintain high profits whereby they will try to reduce the costs of production. The other issue regarding cigarette tax is that the taxes will only target a certain group in the economy, this target group is the smokers, this may be a tax that will target this group of consumers only and the taxes produced will result to the free rider effect. This means that the revenue collected will be used to provide public goods to the population but some of the people who enjoy the goods will not have paid for the taxes. Therefore the free rider effect on the economy will lead to negative reaction form the target group. A positive reaction however will come from non smokers who advocate for a tobacco free economy, the increase in prices of cigarettes will lead to a decline in the number of cigarettes produced in the economy, as a result of this therefore there will be a decline in the diseases associated with smoking and also some smokers will stop the habit, therefore the tax on cigarettes will lead to positive vote regarding the health and health expenses on the diseases and ailments caused by smoking. References: Anthony Samuelson (1964) Economics, McGraw-Hill publishers, New York Brian Snow (1997) Macroeconomics: introduction to macroeconomics, Rout ledge publishers, UK Codington A. (2003) Keynesian Economics: The First Principles, Rout ledge publishers, US Fischer S and Dornbusch R (2003) Economics, 7th Edition, McGraw Hill press, Hadjimichalakis M. (1982) Modern Economics, Prentice Hall Publishers, New Jersey Thomas Boylan and Paschal Francis (1995) Beyond Rhetoric and Realism in Economics: Towards a reformulation of economic methodology, Rout ledge, UK S Good all and Ian Livingstone (1970) Economics and Development: an introduction, Oxford University Press, Oxford Stratton (1999) Economics: A New Introduction, McGraw Hill Publishers, New York Powell M and Matthews K (2005) Economics, 6th Edition, Addison Wesley Press Philip Hardwick (2004) Introduction to Modern Economics, Pearson Education Press, UK Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(Economics and Development Assignment Example | Topics and Well Written Essays - 1500 words, n.d.)
Economics and Development Assignment Example | Topics and Well Written Essays - 1500 words. https://studentshare.org/macro-microeconomics/2031355-about-economics
(Economics and Development Assignment Example | Topics and Well Written Essays - 1500 Words)
Economics and Development Assignment Example | Topics and Well Written Essays - 1500 Words. https://studentshare.org/macro-microeconomics/2031355-about-economics.
“Economics and Development Assignment Example | Topics and Well Written Essays - 1500 Words”. https://studentshare.org/macro-microeconomics/2031355-about-economics.
  • Cited: 0 times

CHECK THESE SAMPLES OF Economics and Development

Development Economics Research Trends

… The paper "development Economics Research Trends" Is a perfect example of a Macro and Microeconomics Case Study.... The paper "development Economics Research Trends" Is a perfect example of a Macro and Microeconomics Case Study.... Despite much publicity and attention from social scientists, the relationship between inequality and the enlisted features (economic development, social, and political) remains scantly understood.... Results presented by Rocha (2008) for nine developed countries covering the period 1830-1985 indicated ruled out the correlation between inequality and economic development....
8 Pages (2000 words) Case Study

Economics of Development

… The paper "Economics of development" is a wonderful example of an assignment on macro and microeconomics.... The paper "Economics of development" is a wonderful example of an assignment on macro and microeconomics.... This in turn means that contribution of the poor as well as resources that would be channeled to helping them are used for development, which would in turn enhance growth....
8 Pages (2000 words) Assignment

Chinas Economic Development

… The paper "China's Economic development" is a perfect example of a micro and macroeconomic case study.... The paper "China's Economic development" is a perfect example of a micro and macroeconomic case study.... nbsp;China's central government controls the country's banking sectors and it ensures that capital is given to the industries that it considers to be important to the economy....
12 Pages (3000 words) Case Study

Impact of Carbon Tax on Business Operations in Australia and the UK

… The paper "Impact of Carbon Tax on Business Operations in Australia and the UK" is an outstanding example of a business case study.... nbsp;Safirova et al, 2001 posits that governments form frameworks and regulations well known as policies, in which businesses can compete against and align with each other....
7 Pages (1750 words) Case Study

Why Has Regionalism Become Such a Popular Strategy to Cope with Globalization

nbsp;Globalization is perceived as a very high level of global economic development as well as life in its conditions and content activity which tend to expand for planetarism.... nbsp;Globalization is perceived as a very high level of global economic development as well as life in its conditions and content activity which tend to expand for planetarism.... In particular, economic aspects of regionalism aim at achieving similar economic development, maintaining regional competitiveness as well as comparative advantages within the global arena and a shared reaction to risks affecting the environment....
6 Pages (1500 words) Essay

Why Are More Customers Switching to Online Shopping from Traditional Shops

… The paper "Why Are More Customers Switching to Online Shopping from Traditional Shops" is a good example of marketing coursework.... nbsp;Online shopping is a contemporary trend that is growing and gaining wide-spread acceptance as the preferred method of purchasing goods and services.... Online shopping utilizes the use of technology particularly the computers, credit and debit cards and the internet to perform marketing operations....
7 Pages (1750 words) Coursework

Globalization and Economic Development

… The paper "Globalization and Economic development " is a great example of macro & microeconomics coursework.... The paper "Globalization and Economic development " is a great example of macro & microeconomics coursework.... With this in mind, globalization has contributed to the development of economies and expansion of the industries across the world....
11 Pages (2750 words) Coursework

Economic Development

… The paper "Economic development" is an amazing example of a Macro & Microeconomics essay.... The purpose of the report is to explain the evolution of the economic development observed in Malawi which is classified as a low-income country.... The report gives the history of the developments in the economic development of Malawi.... All the statistics on economic growth such as the change in per capita income, population, and the qualitative statistics that characterize the level of development are also explained in the report....
11 Pages (2750 words) Essay
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.
Contact Us