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Task A: Welfare Effects of Government Intervention

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Added on  2020-03-28

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ABOLITION OF MAHOGANY HARVESTING, INCENTIVES AND HOMICIDE EFFECT OF REGULATION ON MAHOGANY HARVEST IN BRAZIL SS 16 LINK BETWEEN ECONOMIC ACTIVITY AND VIOLENCE IN BRAZIL Name of Student: Name of University: Authors note: TABLE OF CONTENT Task A: Welfare Effects of Government Intervention 2 Task B: Production Decisions 6 Task C: Impact on the Homicide Rate 10 Task D: Lessons and Reflections 13

Task A: Welfare Effects of Government Intervention

   Added on 2020-03-28

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Running head: ABOLITION OF MAHOGANY HARVESTING, INCENTIVES ANDHOMICIDELINK BETWEEN ECONOMIC ACTIVITY AND VIOLENCE IN BRAZILName of Student:Name of University:Authors note:
Task A: Welfare Effects of Government Intervention_1
1EFFECT OF REGULATION ON MAHOGANY HARVEST IN BRAZILTABLE OF CONTENTTask A: Welfare Effects of Government Intervention..............................................................2Task B: Production Decisions...................................................................................................6Task C: Impact on the Homicide Rate....................................................................................10Task D: Lessons and Reflections............................................................................................13REFERENCE...........................................................................................................................16
Task A: Welfare Effects of Government Intervention_2
2EFFECT OF REGULATION ON MAHOGANY HARVEST IN BRAZILTask A: Welfare Effects of Government Interventiona)Various policies are adopted by government in order to stabilize economy and onesuch policy is tax imposition, as a result of imposition of tax, buyers or sellers mainlyfaces constraint in terms of price differentiation. Tax imposition also creates morerevenue to government funding (Pollack, 2012). The increasing harvest of mahogany inBrazil draw the attention of government and as a result government decided to reduce theharvesting by making the goods costlier through imposition tax payment for each unit ofproduction. Figure 1: Tax Regulation imposed in Mahogany MarketTax imposition on seller leads to movement of supply curve upward direction and forthis reason supply decreased in the market to avoid the tax payment. The reduction in supplywith same demand demanded leads to higher market price after tax implementation and theequilibrium quantity supplied in the market falls from Q0 to Q1. Tax thus reduces the amountexchanged between buyers and suppliers and this in turn leads to loss of both the producer aswell as consumer surplus. This result creates forgone social welfare and generatesdeadweight loss which is shown by the area E1AE0 in the above diagram.
Task A: Welfare Effects of Government Intervention_3
3EFFECT OF REGULATION ON MAHOGANY HARVEST IN BRAZILb)Quota is a regulatory policy implemented by the government to impose restriction on the quantity supplied in the market. It sets limit on production and supply in the market (Pothen and Fink, 2015.). Government imposed quota on maximum harvest amount of mahogany in order to tackle problem associated with it. This step resulted in vertical supply curve vertical with quantity level to Q1 beyond this quantity level the supplier cannot supply .The vertical supply curve resulted in movement of equilibrium price at P1which is higher than the previous equilibrium price E0 . The area of ABC in the below figure shows deadweight loss that creates leakage of social welfare.Figure 2: Quota in Mahogany Harvesting Marketc)i) The rigorous action taken against sellers can create disincentive to suppliersand this is evident from the above diagram which shows supply curve moves towards leftto S1. The decrease in demand of mahogany woods and related products to consumers fallin demand that in turn causes downward shift of the demand curve. The fall in demandthus shows change in taste and preference of the consumer. Equilibrium price andquantity as a result of imposition of tax and quota changed and for this demand andsupply also changed
Task A: Welfare Effects of Government Intervention_4

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