Question 1Introduction of tax affects both supply and demand of alcopops. The introduction of the alcopops tax will automatically correct externalities which abusers of alcopops impose on the society. The rise in tax will result to increase in the buying cost of alcopops (tax will be transferred from the producers to consumerts). The buyers will be discourages or move to other alternatives of alcopops. These are other goods that are competing with it will have market. The consumers have authority to alter their demands and purchases to other goods or services.
They do this at their own choices and wish. When the price of a given service or goods changes, the clients rush to other commodities (substitutes or cheaper ones) and hence the producers loss market for their goods. PnPrice (P) Pe Qn Qe Demanded quantity (D)Qn and Pn are price and quantity equilibrium respectively. They show the original price before tax was imposed on alcopops. The price moves to Pn and demand to Dn. The demands decrease because the customers either decline the purchase of alcopops or run to alternatives.
Question 2Inelastic goods are the goods whose price doesn’t change due to changes either in demanded quantities or supply. Alcopops Demand is elastic. Price increase will lead to demand decrease and the reverse is true. Elasticity elaborates the amount by which the demanded quantity or supplied varies if there is price alteration. The greater the change in quantity (supplied or demanded), the greater the service/good elasticity and vice versa. Taking example for goods like, demand for alcopops, suppose its price alters, the quantity demanded will decrease. This is because the abuser will shift their demand to alternatives.
Question 3It is known or assumed by governing or body for taxation that the tax should be imposed on producers but this is not always the case. The producers simply transfer the price to clients. When a commodity is taxed lets say $0.2 then the price off that particular commodity will rise by $0.2. Like the example of alcopops above, the tax was simply transferred to the buyers who felt the whole load. Elasticity of price mainly affects the consumers more than manufacturers.
At times when the consumers have many alternatives, they simply shift to the others and in this case tax mainly affects the producers. They don’t want to loss market and therefore will maintain then price. Question 4Supply is amount/quantity that a market can give to its clients at a specified time with a given price. Supply amount is the amount that the market suppliers can supply to the marketplace. Price in this case determines supply and demand of a given service or good. Demand is the quantity of a given commodity or service that the customers require at given price and time.
Therefore the demanded quantity can be regarded as the quantity of a commodity/service that the whole populations are willing to purchase at that time and a specific price. The connection amid price and quantity demanded is called demand relationship. Assuming that the demand for alcopops is D and supply is S, price P then we imposes tax on it, the demand and amount given out will both change. The price will move and demand reduces.
The following diagram shows the tax effect on particular commodities (elastic).