Question 1a
This is the benefit which a supplier gets upon selling a commodity. It is calculated as the difference in the amount that a supplier can accept to sell his commodity and the amount which the commodity is actually sold in the in the market.
Question 1 b
The increase in cost of commodity to sellers is seen leads to increase in price of a commodity in the market. If it is not possible to increase the price of a commodity supply curve shifts to the left indicating a decrease in quantity supplied (Depken,26).
Question 1 c
Producer surplus increases as price of a commodity increases.
Question 2a
Company D kutz $ 2 and the consumer Ricki
Question 2b
Maximum possible surplus= 8-2 = $6
Minimum possible surplus= 2-2= $0
Arthur Laffer's theory of tax rates
Increase in tax leads to increase in dead weight loss because it makes consumers to waste more time in tax avoiding behavior. The wasted time could otherwise be used in productive activities.
It is difficult to predict the effect of either increase or decrease in tax rate because of difference elasticity of supply for factors of production as well as labor.
Quotas and Tariffs
Quotas refers to maximum amount of supply allowed for a given commodity in a given market while tariff is the amount of tax paid for selling given amount of good in the market. Application of quota leads to scarcity of a commodity in the market and increase in price while increase in tariffs lead to increases price of commodities because the amount charged is charged to consumers by supplies. Application of quotas and tariffs lead to increased dead weight loss because they lead to decrease in consumer welfare.
The arguments against free trade
- Domestic firms face tough competition which may put them out of business. This limits growth of domestic industries and diversification of country’s economy.
- Infant industries cannot grow because of completion from multinationals which enjoy economies of scale. The multinationals offer goods at lower price because their cost of production is lower than that of infant industries.
- Employment opportunities are not created because local firms are not growing and infant industries are being closed down. This leads to increased unemployment level in the country.
- Increased dependency on foreign firms for basic commodities affect the importing country negatively incase of hostilities between the importing and exporting nations.
- Unfair competition may arise in case of difference s in production rules between different countries and costs of production.
The Coase theorem
According to the theorem when there is a conflict of property rights the parties involved will always be willing to negotiate to resolve their diffrences. The negotiation is expected to lead to terms which present maximum benefit to parties. However, the process fails to offer solution to conflicts if there are high transaction costs (bargaining cost is not equal to zero), there is a large number of parties involved in the bargaining process, and if parties hold out for a better deal leading to break down in the bargaining process.
Goldfish verses Salmon
Goldfish are privately owned unlike salmon. Therefore, farmers will try to breed as many goldfish as possible because of the incentive to sell them latter at a profit. On the other hand, fishermen try to outdo each other to catch as many salmon as possible but they don’t mind how to come up with ways to breed the fish so as to increase its population.
Income tax and consumption tax
Consumption tax the tax levied on upon purchase of goods and services for consumption. On the other hand, income tax is charged on the amount of money one receives as income i.e. interest, capital gains, salaries, dividends, and wages. It is better to levy consumption tax than income tax because consumption tax does not discourage working, does not tax savings hence allows savings to be mobilized and invested and finally it does not affect allocation of resources.
Sources of tax
Federal source of tax: pay roll tax, individual income tax and cooperate tax. They are different from those of state which include Provincial Sales Tax, local sales tax, and Property Transfer Tax. The difference in sources of tax revenue is brought by legislations on how citizens should be taxed.
References
Depken, Craig A.. Microeconomics demystified. New York: McGraw-Hill, 2006. Print.
