Netflix Pricing and Tax Incidence- Assignment

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Added on 2019-11-26

Netflix Pricing and Tax Incidence- Assignment

Added on 2019-11-26

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Running Head: Netflix Price HikeNetflix Pricing and Tax IncidenceBy (Name)(Tutor)(University)(Date)

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Netflix Price Hike2Netflix Pricing and Tax IncidenceIntroductionTurner (2017) is trying to show how an increase in the cost of producing a good or a service influences the price charged on that good or the service provided. The increase on cost is as a result of the introduction of Netflix GST tax. The Australian customers are expected to pay aprice that is 20% higher than what they used to pay earlier. This may have an impact on the supply and demand of Netflix products. One expectation is that the high price will discourage consumption. The suppliers will be hurt and depending on the price elasticity of demand for Netflix products will shift the burden of the increased tax on the consumers. If the products confirm to be price elastic, the suppliers will not be able to shift much of the tax incidence to the consumers; though the consumer price will rise, the suppliers will also carry a significant proportion of the tax burden. On the other hand, if the products are confirmed to be inelastic to changes in price, the suppliers will be able to shift the biggest proportion of the increased tax burden to its consumers and carry an insignificant proportion; or they can shift the whole tax burden.Question 1The article emphasizes on price increased after the GST tax introduction on Netflix. This will disrupt the equilibrium that preexisted on the demand and supply for Netflix products. The demand is expected to fall as the customer’s willingness to purchase these Netflix products will fall. In economics, demand laws dictates that consumers demand more when the products are offered at a lower price, but demands less of a similar product when it is offered at a higher price(Goodwin et al., 2015). An expensive product will thus attract less number of customers. The supply for the Netflix products is affected by costs of production whereas the demand is affected by price changes. The graph below will be used to illustrate the changes on the demand, supply and price for Netflix products after GST tax introduction. Cost of production is one of the non-price factors influencing the supply for Netflix products.

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Netflix Price Hike3Fig: Demand and supply for Netflix products after GST tax introduction PriceS1S0PtPeDemandQtQeQuantity The equilibrium point before the Netflix GST tax introduction is at the intersection of supply and demand curve above at quantity is Qe and price Pe. The GST is an addition to the cost of providing the Netflix goods and thus is affecting the supply for the goods. According to Chand (2016), any other factor other than price that affects supply causes the supply curve to shift; the addition to the cost is lowering the supply and thus a shift of supply curve S0 to S1 indicated by the arrows. The demand curve is influenced by price and any price influence on demand causes a movement along its curve; any other factor causes it to shift (Dorman, 2014). The shift in supply along the demand curve is creating a new equilibrium at the intersection of demand curve and supply S1. The new equilibrium quantity is Qt at price Pt.

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