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Netflix Price Hike & Tax Incidence

   

Added on  2020-02-19

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Running Head: The Impact of Tax on PricesDemand and Supply of Netflix Products, its Elasticity and Tax BurdenBy (Name)(Tutor)(University)(Date)
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The Impact of Tax on Prices2Demand and Supply of Netflix Products, its Elasticity and Tax BurdenIntroductionNetflix was launched in 2015. This company has not yet been taxed since it was launcheduntil the 2017 proposal was made. This means that its cost of providing its goods has been lower.This is also an explanation of why this company has been offering its products at a very low price. In the article, it is noted that the company has maintained a constant price level since it was launched; the first price change was expected after the tax introduction. The company is freeto vary its prices according to the changes in taxes and other regulatory (Turner, 2017). After the GST tax introduction, the company’s cost of production is going to rise and thus the price will rise significantly. The GST tax was proposed to be raised by 10% for all the goods purchased from overseas. The introduction of tax will not only impact the price for the products but also thedemand and supply for the same. In this case, the supply is expected to fall, demand will also fallsince price will rise (McEachern, 2014). When making pricing decisions, it is essential to take into consideration elasticity of demand for the product resulting from a price change (Gallo, 2015). The demand for goods with elastic demand changes significantly after price changes. Similarly, that for inelastic demand does not change by a significant proportion. High costs of production makes the companies to revise their price upwards to avoid incurring losses. Tax burden shifting to the consumers is dependent on the degree of elasticity.
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The Impact of Tax on Prices3Question 1Graph: Price and Output for Netflix goods Price S2P1 e1 S1P*e*D Q1 Q* Quantity The efficient equilibrium level for Netflix initially was at e* with quantity equal to Q* and price P*. The GST levy Tax raised the Netflix’s cost of production and thus an influence on the supply level. High costs shifts the supply curve leftwards from S1 to S2; this is a fall in supply (Netmba.com, 2017). This introduces a shortage of supply; a new equilibrium e1 is thus created. The supply laws points out that any shortage of supply results in price for the products rising. A shortage may mean that the demand exceeds supply. The price rose from P* to P1. The shift in supply curve to the left is due to the fact that it is influenced by a non-price factor (Mathews, 2016).
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