RMIT University, Understanding the Business Environment, Assessment 3: Presentation

Summary

Andrew 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

• 📈 Consumer Surplus is the difference between what consumers are willing to pay and what they actually pay, represented by the blue triangle.
• 🔶 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.
• 💔 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.
• 📉 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.
• 🛒 An increase in consumer spending due to taxes can lead to a lower overall demand, affecting the economy negatively.
• 📉 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.
• 🌐 Tariffs, as taxes on imports, protect domestic industries but can lead to inefficiencies and reduce welfare in the domestic economy.
• 📊 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.
• 💼 Macroeconomically, consumption taxes can lead to a decrease in aggregate demand, causing a leftward shift in the aggregate demand curve.
• 🍏 Health taxes on harmful products can initially cause a leftward shift in the short-run aggregate supply curve due to increased production costs.
• 🌿 In the long run, health taxes can improve public health, increasing workforce productivity and positively affecting the long-run aggregate supply curve.
• 📊 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

00:00

💼 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.

05:01

🌡️ 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.

Keywords

💡Consumer Surplus

Consumer surplus refers to the difference between what consumers are willing to pay for a product and what they actually pay. In the context of the video, it is represented by the blue triangle in the demand and supply diagram before taxes. The script discusses how a consumption tax can reduce consumer surplus as it increases the price consumers pay, leading to a decrease in consumer welfare.

💡Producer Surplus

Producer surplus is the difference between the price at which producers are willing to sell a product and the price they actually receive. In the video, it is depicted by the orange triangle. The script explains that consumption taxes can reduce producer surplus because the taxes imposed on producers can lower the prices they receive, affecting their willingness to supply goods and services.

💡Dead Weight Loss

Dead weight loss is a measure of market inefficiency and underproduction caused by taxes or other market distortions. The script uses the term to describe the reduction in overall economic welfare due to consumption taxes. It is illustrated as the area between the equilibrium points before and after the tax, representing the loss of both consumer and producer welfare.

💡Consumption Tax

A consumption tax is a levy on the purchase of goods or services. The video script discusses the impact of consumption taxes on both microeconomic (individual consumer and producer behavior) and macroeconomic (aggregate demand and supply) levels. It explains how consumption taxes can lead to a decrease in consumer spending and a shift in the aggregate demand curve.

💡Tariff

A tariff is a tax imposed on imported goods, which the video script discusses as a means to protect domestic industries and generate government revenue. The script explains that tariffs can lead to a reduction in imports, an increase in domestic production, and a dead weight loss due to the inefficiency caused by the tax.

💡Free Trade

Free trade refers to the unrestricted movement of goods and services across national borders without barriers like tariffs or quotas. The video contrasts free trade with the scenario where tariffs are imposed, showing how tariffs alter the market equilibrium and lead to changes in domestic supply and demand.

💡Aggregate Demand

Aggregate demand is the total demand for all final goods and services in an economy at a given time. The script discusses how consumption taxes can lead to a decrease in consumer spending, which in turn can cause a leftward shift in the aggregate demand curve, indicating a reduction in overall demand.

💡Aggregate Supply

Aggregate supply represents the total supply of all final goods and services in an economy. The video script explains how a health tax on unhealthy products can initially cause a leftward shift in the short-run aggregate supply curve due to higher production costs, but potentially lead to a rightward shift in the long run if public health improves.

💡Health Tax

A health tax is a specific type of consumption tax imposed on products deemed harmful to health, such as sugary beverages or tobacco. The script argues that while health taxes may have short-term negative effects on consumer spending and aggregate demand, they can lead to long-term economic benefits by improving public health, increasing productivity, and boosting real GDP.

💡Econometric Model

An econometric model is a statistical tool used to estimate economic relationships among variables. The script suggests that an econometric model could be applied to analyze the correlation between health taxes and economic growth, identifying potential core factors that influence the relationship between taxes on unhealthy products and health outcomes.

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