Economics Assignment: Tax Incidence, Public Goods, and Interest Groups

This economics assignment analyzes several key concepts. It begins with an examination of tax incidence, discussing how taxes impact consumers and sellers and the role of demand and supply elasticity. The assignment then explores the role of government, including allocative, distributive, stabilization, and regulatory functions within a mixed economy. It provides a detailed overview of public goods, including their characteristics of non-excludability and non-rivalry, and explains the government's role in providing them. Finally, the assignment delves into the role of interest groups, their influence on economic regulation, and their strategies for impacting government policies. The document covers topics like stamp duty and progressive taxation, the provision of public goods, and how interest groups influence economic regulations, providing a comprehensive overview of economics.

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TABLE OF CONTENT
PAPER-2014.......................................................................................................................................2
PAPER-2015.......................................................................................................................................9
PAPER-2016.....................................................................................................................................14
REFERENCE...................................................................................................................................22

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PAPER-2014
Question 2
a) The diverse economy leads to diversity in economic and subsequent social conditions of
the people with evident presence of inequalities in resource distribution. The imposition of
tax by government can create different amount of burden on people who earn differently or
belonging to different segment of social status. Thus government as policy maker should
always have sound knowledge about incidence of tax when imposing a tax. Application of
tax makes the price of goods and services higher for both the consumers and sellers. Even
if sellers are taxed on the production or inputs the part of it is passed on the buyers.
Moreover, buyers also pay direct taxes when buying or consuming any product or service.
Difference in demand and supply elasticity create difference of the incidence of tax on
buyers and sellers that further influences their demand and supply decisions and hence the
market transaction changes. If a non flexible and constant tax rate is imposed then people
with lower income will face more incidence of tax that would drain out their resources
more and reduce ability to consume or save deteriorating their economic situation. Thus
incidence of tax should be born in policy maker’s mind.
b) If cigarettes are taxed then the per unit price of the smoke will go up. As per the theory of
demand, higher the price become lower is the demand made by the consumers. Going by
theory, imposition of tax or increasing the rate of tax would make smoking costlier and
hence demand for it would fall. But in reality the incidence of tax might not curb the
demand as claimed if taste and preference is higher leading to inelastic demand. Moreover
those who has increasing income would anyhow be able to pay the higher tax than the one

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who has income fixed at some level If the demand for smoke is inelastic then for one unit
change increase in price, fall in the demand would be less than one unit. Thus higher taxing
can fail the motive of the policy maker.
c) A common source from property taxation has been stamp duty for government over the
years. The amount of tax is derive based on the value property in subject has. The amount
also varies based on different state operation and condition of the property. It is legally
mandatory to pay stamp duty that can also act as evidence regarding purchase or sale of
assets or properties. It refers to a fixed rate of tax designed and implemented on legal basis
by the government. This is more like constant tax rate The movement of government
toward a tax system based on value of property would be more like progressive taxation.
This would allow to earn greater tax revenue from the property coming from high rate of
property tax rate if the property valuation is higher. The lower tax rate is applied on the
properties that have lower values. This create more flexibility and fairness in the tax
collection along with equity and greater productivity in terms of amount collected as
revenue from tax. It is convenient for higher value of asset holder to pay more tax than
someone who has lower value of asset. The economy and convenience of a good tax
structure is thus maintained.
Question 3
a) In the mixed economic situation, the role of government is dual. Beside dealing with
formulation and implementation of the public policies, the government also intervene in
designing and executi9ng various economic role such are discussed as major function of
government in any nation. The functions deal with allocation, distribution, stabilization and

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regulation of the economic operation in the country. These bring forth the mandate of roles
the government adopts.
Allocative role: This refers to the functional role government plays in order to determine
how to allocate public resources within economy. The detailed plan of government
allocation is outlined evidently n the annual budget prepared by the government. The
provision of public goods for the general mass are in hands of government who firs plans
the allocation based on the projects undertaken by government such as constriction of
roads, bridges, flyovers, spending in educational programs and health care planning. The
services of major public goods like defense are under the discretion of administration of
government. Irrespective of the affordability and other concerns the public goods has to be
provided to mass and thus allocative role of government is much crucial to determine the
health of economy.
Distributive Role: The market operation often led to unfair and biased distribution of the
resources like income, goods and services, price and so on. The statement basic to the role
of the government focuses to arrive at the judgment formed collaboratively regarding
desirability of income distribution. The ambition of government intervention is to achieve
different targets like provision of floor to income, increasing the equality in opportunities
for the benefit of all the sectors in the economy, removing inequality through bringing
more income equality and increasing incentive programs targeting to benefit mass of the
population. The policies of taxation and expenditure by the government are the major
instrument to influence the income distribution and bring equality. Rich are taxed more
than poor in order to achieve fair distribution of income.

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Stabilization Role: This refers to the proactive supervision government has to ascertain
steady and stable growth rate in the economy. The stability or pace of economy often gets
hampered by sudden fluctuations or long borne chronic economic problems including
booms, recession, budget deficit, unemployment inflation and so on. The intervention of
the government in such case focuses on bringing back the stability in the economy. The
stabilization can take place through adoption of proper macroeconomic policies that
influence the aggregate demand and supply leading to equilibrium state. The intention of
the government is to impact the level of price, output, unemployment through monetary
and fiscal policies.
Regulatory Role: the individual interest of people or small business in order to earn more
profit and growth often negative externalities created by them on the surrounding
environment and people are neglected.. this results into market failure where free market
operation fails to bring out best an deficient allocation of resources. To bridge the gap
between individual benefits and social benefit and also the private and social cost of the
production government takes up various regulatory role in order to ascertain efficiency in
production and distribution. For example, imposition of tax on carbon emission is a
regulatory measure taken up by government in order to ascertain the efficiency and reduce
negative externalities. Rules and laws are designed by government in order to regulate and
make market system work efficiently.
b) Key properties of public good:
Non-Excludable: This refers to the inability of the public goods provision to keep
someone away from consumption and derivation of utility based on difference of status,
economic and social background, ability or affordability. Since most services are free of

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cost and does not involve any payment to be made in order to make consumption. For
example a mechanism of providing fresh air in the environment can hardly exclude people
based on any differences. The welfare or positive externality of the fresh air will be
consumed and utilized by everyone irrespective of any factors.
Non-Rival: This feature of the public goods refers to the uniqueness of consumption of
goods that don’t create possibility of deprivation for the other. The consumption made by
one would not reduce the consumption of the other or create any obstruction. The utility
derived from the consumption can be different based on the different taste and preference
of the individual but not based on the difference in the availability or quality of the goods
and service. For example, the street light provided by local municipality is public good
with no rivalry in its consumption. The amount of street light is same for no matter
whosoever consume it or derive benefit from it.
c) Provision of public goods
Government is source of public good as many of the services are provided by without
charging any amount from the consumers. To make sure such services are generated and
made open for mass consumption the crucial factor is expenditures made by government. It
is the government spending in terms of fixed start up or maintenance over time, that help
the economy receive provision of public goods. Construction of roads, parks or any social
program subject to education or health sector requires funding of the government.
Moreover, taxation is another way to make provision of various public goods. Market can
make provision of public goods too. For example, the government controls the services
provided by Radio broadcasts and the telecast can not differentiate people and charge

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individually for listening. But indirectly they can be charged through advertisement to
which consumers listen while the radio shows.
Question 5
Interest Group:
Interest group often known as pressure group or special interest group refers to individuals
forming an association or organization with primary intention of influencing public policies
to favor its concerns. The prime focus of the group that lies at the heart of their formation is
the desire to influence the government policies in order to make their cause beneficial and
meet interest of own. The goal posed by them could be beneficial for only the members or
an entire segment of a society. For example, provision of subsidies to farmers by the
government can be agenda of such group. The way of materializing their interest is by
applying lobby that put pressure on the policy makers. The existence of the interest groups
are evident in the every types of political systems and layers in mostly five broad
categories. They are Public interest group, economic Interest group, Non-associational
group, Cause Group and Public & private institutional interest. In all levels of national,
state or local government this group has been operating to play crucial role in the affairs
owing international importance.
Role in Economic Regulation:
The common goals and sources of interest groups obscure, however, the fact that they vary
widely in their form and lobbying strategies both within and across political systems. This
article provides a broad overview that explains these differences and the role that interest
groups play in society. In any economy regulation made by the government is mandatory to
ascertain the wellbeing of the economic policies. Whenever there is any problem or

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instabilities in the market the application of law is compulsory attempt taken by national
government, which takes the form of regulation. If market failure takes place or protection
of environment issues arise out of production and market operation then regulatory policies
of government are mandatory in order to resolve them.
Interest groups can impact government regulation by highlighting any issues currently
taking place in the market stemming from government’s own policy or any failure in
market operation. They can voice their views and establish their own designed policies in
order to deal with the economic problems in the nation. Moreover the group can influence
the political parties by providing them the fund for election campaign and thus hold some
power in political decisions. Other ways of influencing economic regulation is to involve
social media into their agenda of publicizing the views and planning they have for the
society. Interest groups come up with lost of strategies and planning so that they can mould
the government’s policy toward their goals and beliefs. The resources the group has are
sometimes intellectual and sometimes financial. The leader in the industry has their own
interest group that holds lobby that they employ in order to get their policies be
implemented by the government for the betterment of industry and benefits. There are few
groups who shed light on the social as well as environmental problems and they are mostly
short of financial resources. The evoke general awareness through capturing social media
and their mode of representation is based on ethical tools.
Benefits to Society:
The role of the interest group is to proactively create as well as influence general opinion of
the people through enlightenment. Even though the group tries to capture attention of
government in favor of their views, goals agendas or strategic planning; the main motive of

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them is to bring positive changes to the society and improve the economic condition. The
group might be small or big in size but it definitely carries the essence of the needs and
requirement of the entire society or nation as a whole. Yet they can differ within
themselves based on the structure, strategy, target sector or motive. For example a interest
group empathetic to the bad condition of the farmers influences government to adopt
policies that would benefit entire agricultural farmer community. But there might be
present some industrial elite interest group that exploit the power in favor of benefits
limited to his own industry or small market.
PAPER-2015
Question 3
a) Public goods is kind of good which is not excludable and non rivalrous. It means that anyone
can consume it and consumption of one would not reduce the consumption availability of
other. The possibility of exclusion is absent as there is no direct amount charged for it. For
example, the benefit derived from street light is non-excludable as well as non rivalrous as
consumption of one would not impact the consumption of other while everybody gets
benefitted from the light.
On the other hand private good also provides positive benefits but it is excludable and
rivalrous. The excludability stems from the sense or concept of owing the good which is
further consolidated by property right. Moreover private goods are subject to charges or
payment which excludes people who don’t have ability or affordability or willingness to pay
that much. It is rivalrous which means consumption of one would reduce the amount of

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consumable available for others. The foods in restaurant is private good. It excludes those
who has lower income or poor lacking adequate oney to buy food from there. It is rivalrous as
consumption of one occupies the space as well as food that reduces the possible consumption
of others.
b) Water is one of the important natural resource that is neither excludable nor rivalrous in
a broader sense. But subject to differences in the geographical locations and other factors like
water supply, availability and distribution water may become a scare resource and a private
company might come forward to take up the responsibility of reaching water to every
individual. This would require the firm to charge price for the water which was initially
available without any charges. This makes the good excludable and due to limited availability
more consumption by one would reduce the consumption of others hence rivalrous. The
private firm can charge taxes as well to distribute water properly.
c) Provision of public good is primarily based on the allocation of resources made by the
government at its discretion following the need of the economy. Allocation is planned and
mentioned in the budget which entails how much spending would be done to materialize the
plans in action. Thus government expenditure is another important channel through which
public goods are provided. The policymaker can ration such provisions only by rationing the
allocation and subsequent spending of the government.
Question 5 .
a) Natural monopolist is sole producer or supplier in the market that enjoys the benefit of
economies of scale by charging much lower price than normal monopolist. The less price is
socially optimal and attracts more customers which scale sup the firms revenue and the
fixed cost taken up at the beginning continues to fall. The higher initial fixed cost hinder

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many small firms from entering the market and give competition to the monopolist who
turn to natural monopolist through being the only supplier. This confers them much of the
market power and it can be used anytime to distort supply and charge higher prices to his
self interest. The decision of the natural monopolist would greatly impact the market as the
huge market share is dependent upon him. For example, one firm is supplier of electricity
in a state. It serves the entire population of the state. Now if the firm raises per unit
electricity price then the market stability would be disrupted as the cost of production
would rise in the sectors who use electricity as inputs. Moreover, the expenses of
consumers will rise too reducing the disposable income. As a result, the market equilibrium
gets affected. This why government supervision as well as regulation is required to
maintain market stability and ensure efficiency.
b) In presence of natural monopoly, market competition does not work well since the entire
market demand is taken cared of by one firm who incurs lowest cost of supply.
Unregulated monopoly brings forth inefficiency in the market operations and regulation in
terms of price quantity and access play important role in the market. The natural
monopolist may raise price, reduce output or negotiate with the quality of the service and
these aspects require regulation of the government. The regulations regarding price are cost
plus regulation and cap price regulation. Former refers to prices set by government for a
period viable for a period of time keeping parity with the accounting cost of the firm. Cap
price refers to the setting price in advance and limiting the range of price being revised by
the natural monopolist. The falling average cost faced by natural monopolist is one of the
factor that takes it ahead of any firm in the market. The reason behind falling average cost
is larger fixed than variable cost that falls as the production scale goes up. This provides