The paper "Carbon Tax and the Household’ s Consumption Bundle" is an outstanding example of a micro and macroeconomic assignment. The imposition of the tax would have many effects on the consumption patterns of the people. The first is that it would result in a reduction in the use of carbon-emitting materials. This is because the imposition of the tax would mean that there would be an increase in money that is required to use the products such as gas and coal. Increase in the prices of commodities results to a subsequent decrease in the demand and hence the consumption patterns of the people. The main reason behind this logic is that the issuing of dividends would return and act as a payment for the people for the tax that is levied on the use of the carbon-emitting commodities.
It would also result in maintenance at the general level of livelihood. This means that with the issuing of dividends, the families and the livelihoods would be able to maintain their standards of living. This is as compared to when they have levied the tax with no dividend accompanying it.
This would result in an increase in the general expenditure of the company. Scenario 2 Giffen goods A Giffen good can be defined as a good that violates the law of demand. The law of demand states that as the price of a given commodity, good or service increases, the demand for the commodity decreases. This hence means that at higher prices, few commodities are bought as compared to at lower prices. Giffen goods are hence items that violate this rule. They have a higher demand with increases in the price.
The demand also falls with a decrease in the price. The case would be very different in the case x was a Giffen good. These goods have their demand increase with increases in the price. They also have their demands falling as the price decreases. In this case, an increase in the tax would be replicated to an increase in the price of the commodities. This would hence mean that it qualifies for the concept of the Giffen goods. They are the goods, which have their demand increase with increases in the price.
The demand for x would increase while that for z would reduce due to the price increase.
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