The paper "Principles of Microeconomics" is an outstanding Micro & MAcroeconomics coursework. Tax is a levy charged on a good or service for the Government to earn revenue. At times it is a charge to prohibit usage of a good or service due to its negative effects on the economy. In reference to the case study, the below graph represents the tax imposed on the supply side of goods with high sugar content. Figure 1: Impact of taxes on sellers of foods with a high sugar content When tax is imposed to sellers, the supply curves shift up (from SS to S’ S’ ) by the amount of tax imposed.
As well, this makes the market equilibrium to shift from QP to Q1P1 reducing the quantities demanded goods with high sugar content from Q to Q1 due to a price increase from P to P1. The price increase leads to consumers’ access to a lesser quantity of the same product at higher prices than they used before tax imposition hence it becomes a burden. The graph below demonstrates the effects of tax on goods with high sugar content on buyers. Once the levy is enacted on the consumers (buyers), the demand facing producers shifts downwards by the amount of tax and for this case from Q0 to Q1 because of the reduction of consumers’ purchasing power from P0 to P1 as a result of tax imposition of the goods leading to a surplus in supply. The tax incidence doesn’ t depend on who the levy is imposed since: If it is levied to consumers, they reduce the quantity demanded to producers hence producer must reduce the price of the goods to get the consumers to buy.
Conversely, if the levy is on producers, the additional cost is passed to consumers increasing the products’ price. Price elasticities of either demand or supply influence tax incidences in that; if the price elasticity of supply is lower than that of demand, the tax befalls to the producer and the vice versa. Question 02-Elasticity and Efficiency Consumers will purchase more of a commodity if its comparative price decreases. This kind of relationship provides a ripe ground for economists to analyze price variations’ responses by consumers.
“AS Markets & Market Systems: Price Elasticity of Demand.” Retrieved 2nd October 2016 from www.tutor2u.net/economics.
Australia toothpaste industry photo. Retrieved 3rd October 2016 from https://www.google.com/searchq=photos+of+toothpaste+industry+in+australia&espv=2&biw=1242&bih=606&tbm=isch&tbo=u&source=univ&sa=X&ved=0ahUKEwikmrqhsb7PAhUIOCYKHcqKB9kQ7AkIQw
Kenya power and lighting company photo. Retrieved 3rd October 2016 from http://www.the- star.co.ke/news/2016/01/21/nairobi-central-coastal-region-hit-by-blackout-kenya power_c1281052
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