Business Economics And Management Assesment

Running head: BUSINESS ECONOMICS
Business Economics
Name of the Student
Name of the University
Author Note

BUSINESS ECONOMICS
1
Table of Contents
Answer to question 1.......................................................................................................................2
Answer to question 2.......................................................................................................................9
Reference list.................................................................................................................................15

BUSINESS ECONOMICS
2
Answer to question 1
Climate change is an evolving environmental issue across the world. Excessive emission
of the carbon dioxide gas and greenhouse gases is considered as the cause of this concern. In
reality, it is difficult to get the exact measurement of the environmental losses due to carbon
emissions. On this account, the carbon tax is considered as the most preferable option to arrest
the carbon pollution in the environment (Marron & Toder, 2014). Carbon tax is charged for per
unit of carbon gas emission. Implementation of carbon tax compels the producers to bear more
production cost. The central government of the country fixes the payment for carbon tax. It has
been observed that the purchasing cost of the product gets amplified after the tax imposition. The
market price of the goods and services turns into costlier if tax is levied on them. Therefore, the
market demand for all these products and services gets declined. As a cumulative effect of lower
market demand and increasing production cost, the market cannot achieve its optimum output
level (Fahimnia et al., 2015). This causes exploitation of the economic resources. Both parties
including producer and consumers compromise economic benefits due to carbon tax imposition.
This loss in the economy is termed as dead weight loss. Apart from that, the government also
incurs losses as the revenues earnings receive downsize impact. Altogether, carbon tax is
expected to lower the carbon emission level in the energy sector.

BUSINESS ECONOMICS
3
Figure 1: Carbon tax impacts the profit in the economy
Source: (Murray & Rivers, 2015)
In terms of the economic theory, carbon tax is directly imposed on the company’s
variable cost. This results in the improvement of the marginal and average cost of the company.
Therefore, both average cost curve and marginal cost curve shift upwards. If average revenue
and marginal revenue remain constant, the carbon tax lowers the profit level of the energy
producers (Yamazaki, 2017). Figure 1 explains that carbon tax would surge up the energy price
and therefore, the consumers would have to bear this extra cost related to the increasing energy
price. This falling profit level indeed causes significant loss in the cumulative profit of the
economy. According to the figure 1, P1C1 is the revenue earned by the company in the absence
of carbon tax. Here P1 is the price and C1 is cost of production during pre-carbon condition.
Afterwards, the government has imposed the carbon tax. This has raised the price level from P1
to P2. This has resulted in the reduction of the profit from P1C1 to P2C2. Carbon tax also yields
negative externality for both the consumers and producers (Mathur & Morris, 2014). The carbon