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MAE101 Economic Principles

Added on - 23 Feb 2020

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Running head: IMPACT OF GOVERNMENT REGULATIONIMPACT OF GOVERNMENT REGULATIONName of Student:Name of University:Author Note:
1IMPACT OF GOVERNMENT REGULATIONCONTENTSTask A: Welfare Effects of Government Intervention..............................................................2Task B: Production Decisions...................................................................................................7Task C: Impact on the Homicide Rate....................................................................................11Task D: Lessons and Reflections............................................................................................13REFERENCE...........................................................................................................................15
2IMPACT OF GOVERNMENT REGULATIONTask A: Welfare Effects of Government Interventiona)Imposition of tax takes place by the government when it intends to curb demand orsupply by procuring more money from either consumer or producer or both. In thiscontext govt. wants to decrease the mahogany harvesting y taxing the producers orsuppliers of such goods. Incidence of tax on producer shifts the supply curve upward or toleft (to S1) increasing equilibrium price (to P1) and decreasing equilibrium quantity (to Q1)in the mahogany harvesting market compared to the without tax scenario1.Tax reduces themutual exchange between buyers and suppliers that further leads to forgone producer aswell as consumer surplus dropping the social welfare down and generating deadweightloss by the area of triangle E1AE0.Fig-1: imposition of Tax in Mahogany Harvesting Marketb)Limiting the harvesting of mahogany by imposing quota on the amount harvested(suppose at Q1) through government intervention, the supply curve becomes vertical at Q1as the producer can’t supply more than the amount whatever be the price. Compared toequilibrium E0scenario, now the equilibrium price level reached at P1which is prettyhigher than before quota. The deadweight loss is being shown by the area of triangle ABC1Barbosa, L.C., 2015. Guardians of the Brazilian Amazon rainforest: Environmental organizations anddevelopment. Routledge.
3IMPACT OF GOVERNMENT REGULATIONFig-2: imposition of Quota in Mahogany Harvesting Marketc)i)Due to fear of punishment the producer will reduce its supply shifting the supplycurve toward left to S1.Since the mahogany products are undesirable to consumers theycut back the demand too. The fall is demand not due to changes in price but due tochanges in the taste and preference by them. As a result demand falls2.Now what happensto equilibrium price and quantity depends on the amount o which demand falls. If demandfalls by the same amount of fall in supply the price remains same though equilibriumquantity falls. If demand falls less than the supply falls then price drives up to P1andquantity is also at low than Q0. If demand falls more than the fall in supply then theequilibrium price and quantity fall to P3and Q3.2Copeland, B.R. and Taylor, M.S., 2013. Trade and the environment: Theory and evidence. PrincetonUniversity Press.
4IMPACT OF GOVERNMENT REGULATIONFig-3: Mahogany Harvesting Marketii)Due to disincentive to produce caused by punishment fear, the producers dropsharvest which shifts supply curve to S1. Taste and preference for mahogany harvest hasincreased by the consumers as a result demand shifts outward. What happens to equilibriumprice and quantity is determined by the quantum of shift in the demand curve3. Post shiftequilibrium price will be higher in any cases but quantity supplied can fall, rise or stayconstant at Q04.If demand rise more than fall in the supply then quantity rises and falls whenthe rise in demand is less than the fall in supply which is presented in fig-4.3Tacconi, L., 2012.Illegal logging: law enforcement, livelihoods and the timber trade. Earthscan.4Free, C.M., Landis, R.M., Grogan, J., Schulze, M.D., Lentini, M. and Dünisch, O., 2014. Managementimplications of long-term tree
5IMPACT OF GOVERNMENT REGULATIONFig-4: Mahogany Harvesting Market
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