RMIT University, Understanding the Business Environment, Assessment 3: Presentation
Summary
TLDRAndrew Hadra's presentation explores the economic impacts of taxes on consumer and producer welfare, focusing on consumption taxes and tariffs. He discusses how these taxes affect market equilibrium, leading to deadweight loss and reduced economic welfare. Andrew also touches on health taxes, suggesting that while they may initially decrease economic activity, they can boost long-term productivity and GDP by improving public health.
Takeaways
- ๐ Consumer Surplus is the difference between what consumers are willing to pay and what they actually pay, represented by the blue triangle.
- ๐ถ Producer Surplus is the difference between the price a company receives and the price it is willing to sell at, represented by the orange triangle.
- ๐ Consumption taxes, like sales tax, increase the cost of goods and services, leading to a decrease in consumer and producer surplus, shown as a rectangle.
- ๐ The imposition of consumption taxes can cause a leftward shift in the supply curve (S), indicating a reduction in the supply of goods and services.
- ๐ An increase in consumer spending due to taxes can lead to a lower overall demand, affecting the economy negatively.
- ๐ The welfare impact of consumption taxes is shown by the reduction in consumer and producer surplus, creating a deadweight loss represented by the orange triangle.
- ๐ Tariffs, as taxes on imports, protect domestic industries but can lead to inefficiencies and reduce welfare in the domestic economy.
- ๐ The introduction of tariffs causes a shift in the equilibrium price, leading to a decrease in the quantity of imports and a deadweight loss between domestic supply and demand curves.
- ๐ผ Macroeconomically, consumption taxes can lead to a decrease in aggregate demand, causing a leftward shift in the aggregate demand curve.
- ๐ Health taxes on harmful products can initially cause a leftward shift in the short-run aggregate supply curve due to increased production costs.
- ๐ฟ In the long run, health taxes can improve public health, increasing workforce productivity and positively affecting the long-run aggregate supply curve.
- ๐ Econometric models can be used to analyze the correlation between health taxes and economic growth, with health as the dependent variable and taxes as the independent variable.
Q & A
What is consumer surplus and how is it represented in a demand and supply diagram?
-Consumer surplus is the difference between what consumers are willing to pay and what they actually pay. It is represented in a demand and supply diagram as the area of a triangle above the market price and below the demand curve, labeled in blue.
How does a consumption tax impact consumer surplus?
-A consumption tax increases the cost of goods and services, leading to a higher market price. This results in a decrease in consumer surplus as consumers pay more for the same quantity of goods, represented by a movement along the demand curve without a shift.
What is producer surplus and where is it located in the diagram?
-Producer surplus is the difference between the price a company receives and the price it is willing to accept. It is shown as the area of a triangle below the market price and above the supply curve, labeled in orange.
How does a consumption tax affect producer surplus?
-A consumption tax can reduce producer surplus because it may lead to a decrease in the quantity of goods demanded, which in turn can lower the price received by producers due to the tax, causing a movement along the supply curve.
What is meant by deadweight loss in the context of consumption taxes?
-Deadweight loss refers to the inefficiency and underproduction caused by taxes, represented by the area between the equilibrium levels before and after the tax imposition, labeled in orange. It signifies the net loss of both consumer and producer welfare due to the tax.
How does a tariff on imports affect the domestic market?
-A tariff on imports raises the price for consumers and lowers the price received by producers, leading to a new equilibrium price that is higher than the free trade price. This causes domestic producers to supply more and consumers to demand less, reducing the quantity of imports.
What is the difference between the deadweight loss caused by a consumption tax and a tariff?
-The deadweight loss caused by a consumption tax is represented by the area between the initial and new equilibrium levels, while the loss due to a tariff is the area between the domestic supply and demand curves, showing the loss of overall economic welfare due to the tariff.
How does a consumption tax on the macroeconomic level affect aggregate demand?
-A consumption tax can lead to a decrease in consumer spending due to lower disposable income, which may cause a leftward shift in the aggregate demand curve, representing a reduction in overall demand in the economy.
What are the potential long-term economic benefits of a health tax on harmful products?
-A health tax can improve public health by discouraging consumption of harmful products. This can increase workforce productivity and lifespans, positively affecting the long-run aggregate supply curve and potentially boosting real GDP and economic growth.
How can an econometric model help in understanding the impact of health taxes on economic growth?
-An econometric model can be used to find correlations between health taxes (independent variable) and health outcomes or economic growth (dependent variable). It can help identify potential core founders and guide the analysis to understand the true effects of imposing such taxes.
What is the short-term impact of a health tax on aggregate demand?
-In the short term, a health tax may lead to a leftward shift in the aggregate demand curve as consumers reduce their spending on unhealthy goods. However, if the tax improves public health, it could lead to increased consumer spending and a rightward shift in the long run.
Outlines
๐ผ Economic Impact of Consumption Taxes
The first paragraph discusses the concept of consumer and producer surplus in the context of a demand and supply diagram before taxes. It explains how consumption taxes increase the cost of goods and services for consumers, leading to a dead weight loss represented by the area between the demand and supply curves after the tax is applied. This tax reduces consumer and producer surplus, shifts the supply curve to the left, and decreases overall demand. The dead weight loss is described as the inefficiency and underproduction caused by taxes, which is a reduction in economic welfare.
๐ก๏ธ Health Taxes and Their Economic Implications
The second paragraph explores the effects of health taxes on economic growth. It begins by explaining how health taxes can initially reduce consumer spending and shift the aggregate demand curve to the left due to higher production costs for unhealthy goods. However, in the long term, if health taxes improve public health by reducing chronic diseases and increasing workforce productivity, they can positively affect the long run aggregate supply curve. The paragraph suggests that while health taxes might have a negative short-term impact on the economy, they can lead to increased productivity and economic growth in the long run. It also mentions the use of econometric models to analyze the correlation between health taxes and economic growth.
Mindmap
Keywords
๐กConsumer Surplus
๐กProducer Surplus
๐กDead Weight Loss
๐กConsumption Tax
๐กTariff
๐กFree Trade
๐กAggregate Demand
๐กAggregate Supply
๐กHealth Tax
๐กEconometric Model
Highlights
Consumer surplus is the difference between what consumers pay and what they would have been willing to pay.
Producer surplus is the difference between the price a company receives and the price it will be willing to sell.
Consumption taxes increase the cost of goods and services for consumers, leading to a reduction in consumer spending and supply.
Consumption taxes can cause a leftward shift in the supply curve, indicating reduced supply.
Consumer welfare decreases as the supply shifts upward due to consumption tax, leading to higher prices and decreased demand.
Producer welfare decreases as producers receive a lower price due to the imposed tax, reducing profits.
Deadweight loss is the market inefficiency and underproduction caused by taxes, representing a reduction in overall economic welfare.
Tariffs are taxes on imports that raise the price for consumers and lower the price received by producers.
Tariffs can lead to a decrease in imports and generate government revenue, but also cause a deadweight loss.
Tariffs protect domestic industries but can lead to inefficiencies and reduced welfare in the domestic economy.
A consumption tax implemented on the macroeconomic side raises the price of goods and services, potentially leading to a decrease in aggregate demand.
Health taxes imposed on harmful products like sugary beverages and tobacco can have long-term benefits for the economy.
Health taxes can initially cause a leftward shift in the short-run aggregate supply curve due to higher production costs.
Long-term impacts of health taxes on the long-run aggregate supply curve depend on the tax's influence on the economy's productive capacity.
A healthier workforce due to health taxes can lead to increased productivity and a rightward shift in the long-run aggregate supply curve.
Health taxes may reduce consumer spending on unhealthy goods in the short run, but improve public health outcomes in the long run.
Econometric models can be applied to find the correlation between health taxes and economic growth.
Fat taxes are imposed worldwide to control negative health outcomes by taxing unhealthy products.
Governments are aware that imposing fat taxes may decrease the economy in the short run but increase productivity and real GDP in the long run.
The true effect of imposing fat taxes can be discovered by considering the economy variable in econometric analysis.
Transcripts
good morning Professor my name is Andrew
hadra and today I'll be discussing about
assessment Tre task
one so there are five questions that are
in the table of contents here and for
the four questions I have drawn the
diagram the graph and for the fifth
question I have drawn the D diagram to
discuss more about it for the first
slide I'll be talking about the consumer
and producer supplies that is happening
in the equilibrium of a demand and
Supply diagram before taxes so consumer
suppli is the difference between what
consumers pay and what they would have
been willing to pay and it's labeled in
the blue triangle and the produ Surplus
is the difference between the price a
company receives and the price it will
be willing to sell which is labeled in
the orange
triangle so now I'll be talking about
the consumption taxes and Welfare impact
that is imposed in the economy so this
graph shows the dead weight loss in the
case of a consumption tax levid on the
supplier consumption taxes such as sales
tax increases the cost of goods and
services for consumers and it can be
shown in the rectangle as consumer tax
and producer tax as a result individuals
and households May reduce their spending
on these items and this reduces the
overall level of consumer spending and
Supply in the
economy consumption taxes increases the
cost of production reducing willingness
and ability to supply goods and services
at the same level and this then result
in the leftward shift and the S curve
showing reduced Supply furthermore the
increase in the consumer spending also
leads to a lower level of overall demand
in the economy now be talking about
consumer welfare and producer welfare so
consumer welfare because the supply
shifts upward due to the consumption tax
the new market price is higher than the
pre-tax price therefore consumer
supplies decreases as consumers now pay
a higher price for the same quantity
causing the demand to decrease and it
can be seen from the movement along the
demand curve as price increase does not
cause a shift in the demand curve
there's only movement along the demand
curve for the producer welfare the
producer Supply will decrease as well
because producers receive a lower price
due to the impos tax reducing profits
since consumption and production of cons
consumers and production decreases it
creates a gap between equilibrium 1 and
equilibrium 2 CA the dead weight loss
which is labeled in the orange
triangle so what is dead with loss it is
basically the market inefficiency and
underproduction caused by taxes
it is the area that represents the r
reduction in overall economic welfare
due to the consumption tax it is the net
loss of both consumer and producer
welfare now I'll be talking about the
Taris tariff which is a tax on import
that is imposed by the government so in
a free trade scenario the market
equilibrium is determined by the
intersection of the domestic Supply and
Global demand
curves as the government imposes a tax
on Imports this effectively raise raes
the price by consumers and lowers the
price received by producers thus the new
equilibrium price shifts upwards by the
amount of the Tariff the demand and
Supply diagram without tariff domestic
consumers can purchase imposed
Goods when tariff is introduced the
price of the imported goods Rises
causing domestic producers to supply
more and domestic consumers to demand
less the difference between the new
demand and Supply is the reduced
quantity of imports the government
revenue is from the Tariff but the
market experiences a dewe loss so the
dewe loss in question two is a
triangular region similar to question
one but it lies between the domestic
supply and demand curves so below the
new price after tax but above the free
trade Supply thus shows the loss of
overall economic welfare due to the
Tariff however it is different to the
cred loss from question one where the
government collects taxes from the
consumer and producer suppl places to
summarize while tariff protects domestic
Industries and generate revenue for the
government this can also lead to
inefficiencies and reduce welfare in the
domestic economy the consumer surplus is
the area underneath the demand curve
above the price and since the price of
the Tariff is higher consumer surplus is
now lower because consumers pay higher
prices for imported goods so domestic
producers of similar Goods might benefit
from the Tariff because it makes
imported Goods more expensive making
domestic Alternatives more attractive so
they can produce more so therefore the
produce supplies increases because
producers can increase their production
and sales due to the reduced competition
from
Imports for the next slide I'll be
talking about the imposition of
consumption taxes on the macroeconomic
side so a consumption tax is a tax
imposed on the purchase of goods or
service and when a consumption tax is
implemented it effectively raises the
price of goods and services for
consumers as a result consumers May
reduce their spending as they have lower
disposable income and this reduction in
consumer spending can lead to a decrease
in aggregate demand it can result in a
shift in the aggregate demand curve to
the left as seen on the
diagram as analysis is focusing on the
consumption the supply side will be
ignored and there will be only movement
along the short run aggregate supply as
price decreases and price only cause the
the along a movement along the
curve so for the next SL I'll be talking
about the health taxes and economic
growth whether this can lead to a better
GDP and boost the
economy so a health tax impos on
products that are harmful to heal such
as sugary beverages tobacco products
have a few benefits for the economy
higher production cost causes a leer
shift in the short run aggregate supply
curve in the short run and this shift
occurs because firms face high costs for
producing and selling unhealthy Goods
which reduces their willingness and
ability to supply Goods at the previous
levels the long-term impact on the long
run aggregate supply curve depends on
how the tax influences the economy's
productive capacity so if the tax leads
to improve Public Health such as reduce
risk of chronic diseases increase
Workforce productivity and longer
lifespans it can then positively affect
the long run aggregate supply curve a
healthier Workforce can be more
productive leading to an increase in
economy productive
capacity and this in turn shifts the
long run aggregate supply curve to the
right over time a tax on unhealthy Goods
May reduce consumer spending on those
items on the unhealthy goods and in the
short run this could lead to a leftward
shift in the aggregate demand curve as
people reduce their consumption of such
Goods however in the long run if the tax
leads to improve Public Health outcomes
it can positively affect the ad C Earth
a healthier population is generally more
productive and may have a increased
disposable income due to the reduced
Healthcare cost so this can lead to
increased consumer spending and a
rightward shift in the ad curve over
time in the long run so to sum up a tax
that improves people's heal Health has
long-term benefits for the economy
because the increased in productivity
which boosted the real GDP leading to
economic
growth
an econometric model can be applied to
find the correlation between tax that
improves People's Health and economic
growth a d can help identify potential
core Founders and guide the econometric
analysis for example fat taxes are now
imposed worldwide to control a negative
Health outcome by taxing unhealthy
products it can be also interpreted in
the econometric model that a fat tax is
an independent variable and the heal is
a dependent variable the dependent
variable which is Health relies on the
independent variable fat taxes as the
imposing fat taxes is projected to bring
a better and positive Health outcome in
society however government are aware
that imposing fat tax May decrease the
economy in the short run as a negative
wealth effect however in the long run if
the overall health in society increases
by imposing fat taxes it is likely to
increase the productivity of people
which in turn improve the real GDP and
the
economy therefore the co founder will be
the economy as economy can be impacted
by both fat taxes and health and adding
the economy variable allows us to absorb
the negative and positive relationship
to discover the true effect of imposing
fat taxes that is the end of my
presentation thank you for listening my
name is Andrew good day
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