Study on Principles of Economic

Added on - 28 May 2020

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Running head: ECONOMIC PRINCIPLEEconomic PrincipleName of the studentName of the UniversityAuthor note
1ECONOMIC PRINCIPLETable of ContentsQuestion 1:.......................................................................................................................................2i)...................................................................................................................................................2ii)..................................................................................................................................................2Question 2:.......................................................................................................................................3i)...................................................................................................................................................3ii)..................................................................................................................................................4iii).................................................................................................................................................5Question 3:.......................................................................................................................................6i)...................................................................................................................................................6ii)..................................................................................................................................................6Reference:........................................................................................................................................8
2ECONOMIC PRINCIPLEQuestion 1:i)When a tax is levied, then tax incidence is the term that aids to divide the tax burdenbetween the seller and the buyer (Tremblay and Tremblay 2016). Depending upon the elasticityof demand and supply, tax incidence is determined. If the elasticity of supply is higher than theelasticity of the demand, then tax burden lies on the buyers and if the elasticity of demand ishigher, then the tax burden lies on the buyer (Stiglitz and Rosengard 2015).ii)Tax on sugary drinks is in practice for the long time, which is aimed to reduce theconsumption propensity of the sugary drinks (Briggs 2016). Taxation on the sugary drinks can beacknowledged as the Pigovian tax, which is a type of taxation applied on the market activitiesthat cause externalities. In the case of sugary drinks, it causes negative externalities by enhancingthe scope of diabetes. Thus, economic ideas of taxation on sugary drinks states that a tax on theseproducts will enhance the market price of the sugary drinks leading to a fall in demand, whichwill lead the producer to produce socially optimised amount of sugary drinks (Silano andAgostoni 2017).
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