LaiXinHong (s4042341) BUSM2562 Assessment 3 - Presentation and networking event

Summary

This presentation discusses the effects of consumption taxes and tariffs on public health, economic growth, and government revenue. It explains how taxes alter consumer and producer welfare, create deadweight loss, and impact aggregate demand and supply. The potential benefits of a 'fat tax' for long-term economic growth are highlighted, using Directed Acyclic Graphs to illustrate its influence on health outcomes and economic performance.

Takeaways

• 📊 Consumption taxes reduce consumer and producer welfare by shifting the supply curve and decreasing overall market activity.
• 💸 Taxes cause a deadweight loss, which reflects a reduction in economic welfare due to decreased transactions.
• 🏛️ The government collects tax revenue from consumption taxes, which can be used for public services and programs.
• 📉 Tariffs on imports raise import prices, reducing consumer surplus while benefiting domestic producers with higher prices and producer surplus.
• ⚖️ Deadweight loss from tariffs comes from reduced international trade, while for consumption taxes, it stems from decreased domestic transactions.
• 🔄 Consumption taxes lower aggregate demand (AD) because consumers have less disposable income, leading to a ripple effect on overall economic activity.
• 🚶‍♂️ Health-related taxes, such as a fat tax, may increase long-term aggregate supply (AS) by improving public health and labor productivity.
• 🏥 Healthier populations due to improved dietary habits can lower healthcare costs, boosting economic growth by increasing disposable income and consumer spending.
• 📈 A Directed Acyclic Graph (DAG) shows how a fat tax influences consumption behavior, health outcomes, and ultimately economic growth through indirect effects.
• 🎯 Public health campaigns may act as confounders in the fat tax's impact, as they influence both health outcomes and the tax's implementation.

Q & A

What is the primary focus of the presentation?

The presentation primarily focuses on the wide-ranging effects of taxes, particularly consumption taxes and tariffs, on public health, economic growth, and government revenue.

How does a consumption tax affect consumer and producer welfare?

A consumption tax leads to a decrease in consumer surplus due to higher prices and a reduction in the quantity supplied in the market, which impacts producer surplus. It also generates deadweight loss due to transactions that no longer occur because of the higher price.

What is the impact of a consumption tax on the supply curve?

A consumption tax causes the supply curve to shift to the left because it raises the cost of production for producers, making them willing to supply fewer units at each price level.

How does a tariff on imports differ from a consumption tax?

A tariff on imports is a tax imposed specifically on imported goods, which shifts the supply curve upward by the amount of the tariff, reducing consumer surplus and increasing producer surplus for domestic producers.

What is the deadweight loss caused by a tariff?

The deadweight loss caused by a tariff is due to the reduction in the quantity of imports because of higher prices, which directly affects international trade.

How does a consumption tax influence the aggregate demand (AD) and aggregate supply (AS) model?

A consumption tax can lead to a decrease in consumption expenditure, shifting the AD curve to the left. It typically does not have a direct impact on the AS curve in the short term, as it does not change the economy's productive capabilities.

What is the potential long-term benefit of a tax that improves public health?

A tax that improves public health can shift the AS curve to the right, indicating an increase in the economy's productive capacity. Healthier individuals tend to be more productive, which can lead to higher levels of output or the same amount of input.

How can a healthier population result in positive externalities?

A healthier population can lead to reduced disease transmission rates and improved public health, which can decrease healthcare-related costs and potentially increase disposable income for consumers, boosting consumer spending.

What is a Directed Acyclic Graph (DAG) and how is it used in the context of the presentation?

A Directed Acyclic Graph (DAG) is used to represent the causal relationships between variables. In the presentation, it is used to analyze the impact of a fat tax on consumption behavior, health outcomes, and economic growth, including potential confounders like public health campaigns.

How does the fat tax policy influence consumption behavior according to the DAG?

The fat tax policy makes unhealthy foods more expensive, potentially reducing their consumption, which is represented by an arrow leading from 'Fat Tax' to changes in 'consumption behavior' in the DAG.

What is the indirect impact of the fat tax on economic growth as presented in the DAG?

The indirect impact of the fat tax on economic growth is represented by an arrow from 'Health outcome' to 'economic growth' in the DAG, suggesting that changes in dietary patterns can affect healthcare costs, labor force participation, and productivity, influencing overall economic performance.

Outlines

00:00

💼 Impact of Consumption Taxes on Economic Welfare

This paragraph discusses the effects of consumption taxes on consumer and producer welfare. In a market without taxes, there is an equilibrium where supply and demand intersect, creating consumer and producer surpluses. When the government imposes a tax, the supply curve shifts left due to increased production costs, leading to a reduced quantity supplied and higher prices for consumers. This results in a decrease in consumer surplus and a potential reduction in consumer welfare. The tax generates deadweight loss, representing the loss of economic welfare due to the tax, as some transactions that would have occurred without the tax no longer happen. However, the government collects tax revenue that can be used for public services and programs. The paragraph also contrasts the impact of consumption taxes with tariffs on imports, highlighting that tariffs directly affect international trade by reducing the quantity of imports and shifting the supply curve upward by the amount of the tariff.

05:04

📈 Macroeconomic Effects of Consumption Taxes

The second paragraph delves into the macroeconomic implications of consumption taxes using the AD-AS model. It explains that an increase in taxes leads to a decrease in consumer income available for spending, which in turn shifts the aggregate demand (AD) curve to the left. This reduction in consumption expenditure can trigger a multiplier effect, causing businesses to earn less and potentially reducing hiring and investment, further decreasing overall economic activity. The paragraph also notes that consumption taxes do not directly affect the aggregate supply (AS) curve in the short term, as they do not change the economy's productive capabilities. However, taxes that improve public health can have long-term benefits, potentially shifting the AS curve to the right by increasing the economy's productive capacity. Healthier individuals are more productive, leading to higher output levels and reduced healthcare costs, which can boost consumer spending and shift the AD curve to the right. The paragraph concludes with a discussion of the health and economic effects of a fat tax using Directed Acyclic Graphs (DAGs), illustrating the potential indirect impact of the tax on economic growth through changes in dietary patterns, healthcare costs, labor force participation, and productivity.

Keywords

💡Consumption Tax

A consumption tax is a levy imposed on the sale or consumption of goods and services. It is a type of indirect tax that is typically included in the price of the product. In the video, consumption taxes are discussed in the context of their impact on consumer and producer welfare, market equilibrium, and government revenue. The script explains how a consumption tax can lead to a decrease in consumer surplus and an increase in government revenue, but also result in a deadweight loss due to reduced transactions.

💡Consumer Surplus

Consumer surplus refers to the difference between what consumers are willing to pay for a good or service and what they actually pay. It represents the economic benefit that consumers receive from being able to purchase goods at a price lower than their maximum willingness to pay. The script mentions that when a consumption tax is imposed, consumer surplus decreases because consumers end up paying higher prices, reducing their welfare.

💡Producer Surplus

Producer surplus is the difference between the price at which producers are willing to sell a good or service and the actual price at which they sell it. It reflects the benefit that producers gain from selling their products at a higher price than their minimum willingness to accept. In the context of the video, it is noted that a tariff on imports can increase producer surplus for domestic producers by allowing them to sell at higher prices.

💡Deadweight Loss

Deadweight loss is a measure of the decrease in economic efficiency that occurs when a market is not able to reach its equilibrium due to some form of market distortion, such as a tax. The script explains that deadweight loss occurs when consumption taxes lead to a reduction in the quantity of goods demanded and supplied in the market, and when tariffs reduce the quantity of imports, both of which decrease overall economic welfare.

💡Tariff

A tariff is a tax imposed by a government on imported goods. It is used to protect domestic industries by making imported goods more expensive. The video script discusses how tariffs can lead to a decrease in consumer surplus and an increase in producer surplus, as well as generate government revenue and deadweight loss.

💡Aggregate Demand (AD)

Aggregate demand represents the total demand for all goods and services in an economy at a given time. It is one of the key components of macroeconomic analysis. The script uses the AD and AS (aggregate supply) model to illustrate how consumption taxes can lead to a decrease in aggregate demand, as consumers have less income available for spending, which can trigger a multiplier effect and reduce overall economic activity.

💡Aggregate Supply (AS)

Aggregate supply is the total quantity of goods and services that producers are willing and able to supply at different price levels. It reflects the productive capacity of an economy. The video explains that consumption taxes do not directly impact the aggregate supply in the short term, as they do not change the economy's productive capabilities.

💡Multiplier Effect

The multiplier effect is an economic concept that describes how an initial change in spending can have a larger impact on the economy. In the video, it is mentioned that a decrease in consumption due to higher taxes can lead to a multiplier effect, where reduced consumer spending leads to less revenue for businesses, potentially resulting in reduced hiring and investment, and further decreases in overall economic activity.

💡Fat Tax

A fat tax is a tax specifically levied on certain foods high in fat, sugar, or other unhealthy components. The script discusses the potential health and economic effects of a fat tax using Directed Acyclic Graphs (DAG). It is presented as a policy intervention aimed at changing consumption behavior towards healthier food choices, which could improve public health and potentially have positive economic outcomes.

💡Directed Acyclic Graphs (DAG)

Directed Acyclic Graphs are graphical representations used to display relationships between variables without implying a cyclical relationship. In the video, DAGs are used to illustrate the potential effects of a fat tax on consumption behavior, health outcomes, and economic growth. The script explains how the tax could lead to healthier dietary choices, improved health outcomes, and indirectly, positive economic growth.

💡Public Health Campaigns

Public health campaigns are organized efforts by governments or organizations to promote health awareness and influence behaviors to improve public health. The script mentions public health campaigns as potential confounders in the analysis of the fat tax's effects. These campaigns can influence both the implementation of the fat tax and health outcomes by promoting healthier dietary choices and lifestyles.

Highlights

Consumption taxes impact consumer and producer welfare by altering market equilibrium.

A tax imposition causes the supply curve to shift, leading to reduced quantity supplied.

Consumer surplus decreases due to higher prices resulting from taxes.

Deadweight loss occurs due to transactions not happening because of higher prices.

Government collects tax revenue that can fund public services and programs.

Tariffs on imports are a type of tax that shifts the supply curve upward.

Consumer surplus decreases as consumers pay more for imported goods due to tariffs.

Domestic producers benefit from tariffs as they can sell at higher prices.

Deadweight loss from consumption tax primarily affects domestic transactions.

Tariffs cause deadweight loss by reducing international trade quantity.

Consumption taxes can decrease aggregate demand (AD) by reducing consumer spending.

A decrease in consumption can trigger a multiplier effect, reducing overall economic activity.

Consumption taxes do not directly impact the aggregate supply (AS) in the short term.

Health-improving taxes can shift the AS curve right, indicating increased productive capacity.

Healthier individuals are more productive, leading to higher levels of output.

Healthier populations can reduce disease transmission rates and healthcare costs.

A fat tax can change consumption behavior, making unhealthy foods more expensive.

Changes in dietary habits due to a fat tax can improve public health.

Improved health outcomes can influence economic growth by affecting healthcare costs and productivity.

Public health campaigns can be a confounder, influencing both fat tax implementation and health outcomes.

Transcripts

Ladies and gentlemen, esteemed colleagues, and  fellow attendees of the Australian Conference  

of economists, good morning and welcome to  this presentation on the topic of how such  

taxes can have wide-ranging effects on public  health economic growth and government revenue  

so let's get started! So the first thing that I'm  going to talk about is the impact of consumption  

taxes on consumer and producer welfare. Initially  in a market without taxes there is an equilibrium  

market where the supply and demand curve  intersect, so the green part over here represents  

the consumer surplus and the red part over here  represents the producer surplus. If the government  

impose the tax which is a blue part right here the  supply curve will shift to the left side this is  

because the tax raises the cost of production  for producer and higher cost mean producer are  

willing to supply fewer unit at each price level  resulting in a reduced quantity suppled in the  

market. At the same time as consumer pay a higher  price because of the tax, the consumer surplus  

which represents the different between that they  are willing to pay and what they are actually  

paying will decrease, some consumer may choose  not to buy the product at the higher price as  

we can see both of their welfare has reduced. The  consumption taxes will generate deadweight loss  

the deadweight loss represents the overall loss  of economic welfare in the market due to the tax,  

it occurs because some transaction that would  have occurred without the tax no longer happen  

due to the higher price. On the positive side, the  government collects tax revenue this tax revenue  

can use for public services and also Government  programs. Next I'll be talking about the Tariff on  

Imports. The Tariff on Imports we also can start  with a standard supply and demand diagram, now  

a tariff means a tax that is imposed on imported  goods, this line represents the import price and  

it shifts the supply curve upward by the amount  of tariff For example, if the government impose  

tariff which cost higher price for import Goods  consumer surplus will decrease because consumer  

now pay more for the same quantity of imports  so there will lose some welfare so the consumer  

surplus is normally this big triangle right here  and after the government imposed the Tariff which  

is this part the triangle becomes smaller  as you can see the green part represents the  

Tariff revenue and and the gray part represents  deadweight loss. On the other hand, domestic  

producer will benefit from the Tariff because  they can sell their good at higher price leads  

to increase their producer surplus so normally  the producer surplus is just a small triangle  

right here and after the Tariff has been imposed  the triangle become bigger because they can sell  

their goods at a higher price so it is good  for the producer. Now I'll be talking about the  

difference between deadweight loss in consumption  tax and tariff so in the case of a consumption  

tax the Deadweight loss is caused by reduced  consumption due to the higher price leading to  

less quantity demanded and supply in the market  and it primally affects the domestic transactions  

and may not necessarily reduce the quantity traded  in international market conversely in the case of  

a tariff the deadweight loss is caused by the  reduction in the quantity of imports due to the  

higher price which reduces International Trade so  the Tariff directly affects International Trade by  

reducing the quantity of imports. Alright moving  to the next one I'll be talking about the impact  

of consumption taxes on the macroeconomy using AD  and AS model so aggregate demand (AD) represents  

the total demand for good and services in an  economy while, aggregate supply (AS) represents  

the total quantity of good and services that  producers in an economy are willing and able to  

supply at different price levels. For example,  when consumer pay more in taxes they have less  

income available for spending, this leads to  a decrease in consumption expenditure so a  

decrease in consumption due to a higher taxes will  shift the aggregate demand (AD) curve to the left  

side this is because consumption is a significant  component of aggregate demand (AD)and a reduction  

in consumer spending reduces the overall demand  for goods and services in the economy. Well  

therefore the decrease in consumption can also  trigger a multiplier effect, so when consumer  

spend less businesses earn less revenue which can  lead to reduce hiring and investment by businesses  

this can further decrease overall economic  activity and contributing a larger decrease  

in AD and with the consumption taxes typically do  not have a direct impact on the aggregate supply  

curve in the short term because aggregate supply  (AS) represents the productive capacity of the  

economy and taxes on consumption do not change the  economy's productive capabilities. Furthermore,  

the tax that improve people health can have  potential long-term benefit for the economy  

however a tax that improve people health is likely  to shift the aggregate supply (AS) curve to the  

right indicating an increase in the economy's  productive capacity this shift represents an  

improvement in the potential output of the  economy over the long term. For example,  

healthier individuals tend to be more productive  at work they have lower absenteeism rate,  

higher labor force participation and increase  on-the-job efficiency this leads to higher levels  

of output or the same amount of input. Moreover,  a healthier population can also result in positive  

externalities such as reduce disease transmission  rates and improve Public Health this can lead to a  

decrease in health care related costs so if the  health care cost is reduced due to the improved  

health may lead to increase disposable income for  consumers this could potentially boost consumer  

spending on other goods and services well this  shift the aggregate demand (AD) curve to the right  

side so in this final part I'm going to talk about  the health and economy effects of a fat tax using  

Directed Acyclic Graphs (DAG) so at the starting  point of the graph I introduced the fat tax policy  

this is the primary intervention we are analyzing  and this is the cost of changes in subsequent  

variables moving from left to right we see an  arrow from "Fat Tax" leading to changes in the  

"consumption behavior" of consuming unhealthy food  the arrow implies that the tax impacts consumer  

behavior, making unhealthy Foods more expensive  and potentially reducing their consumption.  

Another set of error extend from "consumption  behavior" to "health outcome" those indicate a  

direct causal relationship suggesting that changes  in dietary habits influence health outcome,  

consuming fewer unhealthy Foods is linked to  improve Public Health potentially reducing health  

issues like obesity you know diabetes and other  diet related conditions. Additionally there is an  

arrow from "Health outcome" leading to "economic  growth" this arrow represents an an indirect  

impact of the fat tax on economic growth changes  in dietary patterns can affect health care cost,  

labor force participation and productivity  which, in turn, can influence the overall  

economic performance of a region or a country.  Well, now I introduce a potential confounder  

which is public health campaigns represented  by an arrow that connects with both the fat  

tax and health outcome. This signifies that  public health campaigns aim at improving  

dietary choices and promoting healthy lifestyles  could influence both the implementation of the  

"fat tax" and the "health outcomes" well ladies  and gentlemen that is all for my presentation,  

thank you all for listening and I hope that you  all are interested in this economy related topic.