Effectiveness of Fiscal Policies

Added on - 29 Apr 2020

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Running Head: Effectiveness of Fiscal PoliciesThe effectiveness of Fiscal Policy Actions of the GovernmentStudent NameInstitutional AffiliationCourse/NumberInstructor NameDue Date
Effectiveness of Fiscal Policies2The effectiveness of Fiscal Policy Actions of the GovernmentQuestion 1The Effectiveness Sugar tax impositionPriceP1PDemandQ1 Q Quantity of Sweets and Sugary SnacksThe graph above represents the changes that would occur if tax was imposed on sweetsand sugary snacks. Since the demand is inelastic to both low and high calorie food stuffs, thedemand curve is steeply sloped; the close the elasticity to zero, the more vertical the slopebecomes; at zero the curve is perfect inelastic and is vertical. The initial price is P and quantitylevel is Q. Since the demand is inelastic, the tax incidence will be borne by the consumers; theproducers will be able to transfer nearly or the whole burden to the consumers. The price levelwill rise significantly. It however would require a huge tax imposition to bring some desiredchanges in the market behavior. I would therefore argue for the tax/subsidy imposition. Althoughthe change won’t be significant, at least there will be a reduction in the obesity level which isrising every year in Australia. The subsidy will raise the welfare of the citizens who are healthconscious since they will be paying less that what they were paying earlier. The loss ofconsumers’ surplus for the sweets and sugary snacks consumers will be a gain to the fruits andvegetables consumers.
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