Price Elasticity of Demand, Taxation and its Impact on UK Economy

This report provides an analysis of microeconomic principles, specifically focusing on price elasticity of demand and supply, and their impact on the UK economy. It explains how price elasticity affects UK consumers and suppliers, delving into factors influencing commodity prices, such as internal costs and external policies. The report also discusses the challenges faced by UK households regarding different elasticity zones (perfectly elastic, relatively elastic, unitary elastic, perfectly inelastic, and relatively inelastic). Furthermore, it examines the advantages and disadvantages of user taxation in the UK, linking it to elasticities, user surplus, and dead-weight failure. The analysis includes an example of UK taxation between 2020-2022 and assesses its positive and negative effects on the UK economy.

Economics for
Business

Table of Contents
INTRODUCTION ..........................................................................................................................3
TASK 1............................................................................................................................................3
Explanation on how price elasticity of demand impact UK consumer and how price elasticity
of supply impacts UK suppliers:..................................................................................................3
TASK 2............................................................................................................................................6
Advantages of versus costs of user taxation in the United Kingdom as it link to elasticities,
user surplus and dead-weight failure:..........................................................................................6
Study one example of United Kingdom taxation during 2020 - 22 by adding belief on whether
it has positive and negative affect on UK Economy guide with evidence:.................................7
CONCLUSION ...............................................................................................................................8
REFERENCES..............................................................................................................................10

INTRODUCTION
In Microeconomics individual person, particular enterprise or particular company is studied.
Elasticity of demand, elasticity of supply and marginal utility of demand and supply are concept
of microeconomics. Price Elasticity of demand indicates the demand of the particular commodity
higher than its price or cost which reciprocal or opposite to each similarly when the demand of
particular commodity decreases then its price is increases rapidly. Cost assumes an imperative
part in purchaser taste and conduct as it consequently changes with the change that happens in
the cost of the ware (Sharma., 2021). This report shows a clarification of what the value
versatility of interest make a mean for on UK purchaser and what the value flexibility of supply
means for the provider who supplies products in the UK. Further in this report a clarification has
been given considering the above factors as the greatest test for the UK buyers alongside
legitimate supporting proof for something very similar. Toward the finish of this report, the
conversation has been done in regards to the advantages and cost of customer tax collection in
the UK connected with versatilities, excess, and extra weight misfortune. Toward the finish of
this report, the finding has been made in regards to the UK charge framework and changes that
are being occurred from 2020 to 2021 so that its consequences for the economy whether positive
or negative could be broke down.
TASK 1
Explanation on how price elasticity of demand impact UK consumer and how price elasticity of
supply impacts UK suppliers:
Price elasticity just evaluate or analyse the response of the market when there is a change
in the price of the commodity for goods and services. It helps the organisation or economy of the
country to analyse the behaviour of the consumers that means what will happen to demand when
the price of product and services get change. Whereas Price elasticity of supply helps economy
to analyse the behaviour of the suppliers who offer their products to the consumer in the market.
These two components Elasticity of supply and elasticity of demand play a very vital role in the
economy of the country but the producer or seller determines there prices by the help of elasticity
of demand because it helps them to find the behaviour of the consumer and save themselves from
loosing of their customer (Aparicio, González and Castelló., 2020). There many other factors

which helps in determining the price of the commodity which can be called as internal and
external. Internal factors such as cost of production, efficiency of workers and availability of raw
material etc. , external factors are government policies, competitors, Transportation costs etc. In
United kingdom the rate of inflation is increases at 2.5% in month of June, it is the highest rate
from last 3 years. Due to this the prices are grows up than expected as well as target.
Price Elasticity refers the response on the amount of commodity which has been sold to
the UK consumer and it also helps in gathering the information about quantity demanded and
quantity supplied while changing in the prices of commodities. For further study the price
Elasticity is divided into two parts.
Price Elasticity of Demand.- It refers to the measurement of Impact on demand when there is a
change in price of the commodity (Carbonara, Tran and Santarelli., 2020). Formula of price
elasticity of demand is % change in price Divided by % Change in Demand. In UK if the price of
the Television is change from 100$ to 110$ it means 10% increase and due to this the demand or
consumption of the product decrease from 100units to 75 units means 25% decrease then the
result is .40 it will concluded that the elasticity of demand of televisions in UK is inelastic it
means that there is a very minor impact of price on quantity demanded by consumers of UK
(Kuc and Teplý., 2018). It can also be Elastic, Inelastic, unitary, perfectly inelastic and perfectly
elastic. If the result is between zero and one then it will considered as inelastic and if the result is
more then one then it will be considered as highly elastic and result came equal to one then it
will be considered as unitary elastic.
Price Elasticity of Supply- It refers to the evaluation of change in quantity supplied of goods
while change in its price and cost. Formula of price elasticity of supply is % change in quantity
supplied divided by % change in price. The price elasticity of supply can also be Inelastic,
Elastic, perfectly inelastic,perfectly elastic. Price elasticity of supply can be calculate by two
ways which are point elasticity and arc-elasticity.
The formula for calculating point elasticity of supply is:-
Es= (dq/dp)*(p/q)
where,dq= %change in quantity supply.
dp= %change in price.
P= Price
q= Quantity

The formula for calculating arc-elasticity:
Es=[(q1-q2)/(q1=q2)]*[(p1+p2)/(p1-p2)].
The industries in UK did not use price elasticity of supply to determine the price of the
commodity because the price elasticity of demand is more use-full or profitable of the
organisation and it contain the consideration of the consumer (Dźwigoł., 2020). The UK housing
market is highly affected due inelastic supply because the demand of the product is very high and
supply of the quantity of product is not good enough to satisfy the needs of the consumers due to
this the prices of the products related to housing project are rising rapidly in the market and it is
not good for any economy of the country.
Analysis and explanation on biggest challenge for the UK households and individuals in terms of
price elasticity of demand and other elasticity such as income elasticity of demand and cross
price elasticity of demand:
The pricing of the product is very important for the organisation because if the organisation's
marketing teams did not determine the right price of the product according to the market
conditions then it will lead to consequences for the economy and the people of the country shift
towards the substitutes of that product. Like in UK the prices of beef in the market get very high
and not affordable for middle class consumer of UK then they shift towards other products like
chicken and porks because their prices are low and also available in the market.
There are also different zones for elasticity which are being categorized below:
Perfectly Elastic: This market refers to the situation where the quantity demanded and supplied
changes by immense amount due change in price of the product (Gens., 2019). This type of
market is not present in UK because the consumers in UK did not have this kind of attachment
with the products.
Relatively Elastic: In this market a minor change in price leads to drastic change in demand of
the product in the country.
Unitary Elastic: When percentage change in demand is equals to percentage change in supply
called unitary elastic. Unitary represent the units so that's why it is also known as unit elastic.
This type of situation is not suitable of any kind of business because the in this situation the
revenue and expenditures both are same. UK's suppliers did not support this type of market
because there is no profit margin for them.

Perfectly Inelastic: In this type of market the demand of goods and services did not change at all
but the price is change because these types’ goods are very important for the consumers. This
kind of situation can be finding in UK market because there are many product which are
essential for them and they purchase them even the price will rise (Price rises speed up again as
economy unlocks).
Relatively Inelastic: The last situation is relatively in elastic in this market if the price change
even by a vast margin then it will lead to small change in demand. The example can be gasoline
which is essential part of UK peoples life and even their price increases the people of UK still
consume it without any doubt
TASK 2
Advantages of versus costs of user taxation in the United Kingdom as it link to elasticities, user
surplus and dead-weight failure:
Taxation related to cost society that contains the price of sales which has been salaried to
the legislative and other price is the governance cost. It is automatically resulted the declining
volume of buyers and producers excess. If the consumers and supplier both faces the loss at time
of paying tax then is termed as dead weight failure/loss (Dukmak, Aburezeq and Khaled., 2019).
It is understand and analysis the business economy or individual through some statistical
structure of welfare failure / loss triangle. The graphical chart of the statistical presentation of the
price welfare along with the regard to resources facilitated that has been faced by the equilibrium
of demand and supply factor. When the tax of a particular goods increases significantly the
decrease in the supply quantity of that specific product are shows that indicates, the failure in the
cost event are impacted both buyers and sellers because they are linked with each other at some
exchange level excluding the tax term. After raising the taxation rate in United Kingdom, the
product or services pricing policies are also place in hike and effected the country population, the
seller tries to sell more volume of products to the costumers but costumers are not efficient or
welling to pay the cost of the commodities (Dyatlov, Lobanov and Zhou., 2018). People started
to take fewer goods from the market as per their standard and income that means higher income
person purchases higher quantity products and lower income consuming person purchases less
products. By paying huge tax seller suffered the huge losses and fells burden over them.

Sometimes, it takes indefinite decision making towards the business such as to close the
business.
For example, assume that if price of $2000 tax are increased on the product of second hand taxis
as well as the exchange of such taxis has been declined from 850 to 600 units. Due to the impact
of tax policies, the declining results the difference of both units which are 250. These type of
losses of mutual advantages will be implemented the taxes without reducing or discarding the
resulted units of 250 of traded imposes like price simultaneously on the purchases or buyers. It
indicates the price as as dead weight loss of tax in this situation.
Dead-weight tax are not good or useful for everyone, it is depended on the standard or position
of the party. Government and legislative have these kinds of right and control to make the
changes according to the needs of the country economy. Tax are only increases the burden of
consumer or supplier by increasing their spending and decreasing their income. It is also
consider by the economy as surplus of tax burden on both consumers and buyers. This condition
is basically considered as the taxation burden (Cao and Shi., 2021). The one concept of
microeconomics helpful at that time was to share the tax burden towards the supplier and
consumer which are the elasticity of supply. It is the concept which affected the state of the dead
weight affected through the taxes because they facilitate the aggregate quantity of trade. When
the supply or demand of the goods shows lesser volume of in-elasticity then it discards the
exchange and after the motion of tax strategy, the dead loss allocated the smaller degree.
Study one example of United Kingdom taxation during 2020 - 22 by adding belief on whether it
has positive and negative affect on UK Economy guide with evidence:
Each and every country are depended on the collected tax to improve the economy
condition of the nation or to manage the legislative spendings during a year. It means tax is plays
a most important role in running the economy smoothly or effectively without facing any crisis.
After the brexit, United Kingdom are making its own independent taxation policy by acquiring
more power and capability as compare to any nation of the world. United Kingdom main
objective is to create and improve the economy so that their tax policy scheme bring out the
compatibility internationally. In UK, government starts most of the free or lower cost welfare or
charity by giving investigation and improvement bonuses, giving free of cost port facilities as
well as by reducing the rate of taxes that includes regional corporate taxes which helps to provide
the nation to fuel up the economy (Elheddad., 2019). The government also decreases the VAT

which are incurring in the electricity charges that specially gives relief to the industries or
households. The government focal point on giving incentives for firm in investigation and
alteration practices that results the primary data or information for better working in the business
firm or organization. United Kingdom richest and powerful organization are paying additional
tax amount of 25% for upcoming 12 months. It is bring out when the big firm such as BP and
Shell Adopts large number of profits from increasing price of gas and global oil (Energy prices:
How will the £5bn windfall tax work 2021). More accentuation has been given to the ports
which comprise of 96% of the exchange volume and 75 % of the exchange esteem. With the
presentation of a free port office, the strength will be given to the current port foundation, which
likewise helps in supporting territorial efficiency (Gunasekaran, Subramanian and Ngai., 2019).
This will likewise assist in making some work office for around 13500 representatives around
then in the UK the demonstration with willing raise the economy. The public authority
additionally brings down the expense rate on people or other corporate appraisals to help them to
record assessment forms so government can be aware of them (Lahti Wincent and Parida., 2018).
The single assessment framework has been based upon to improve on it so everyday people can
without much of a stretch document their profits and further the regulatory work could be
rearranged in like manner for the UK government.
CONCLUSION
From the above report, it can be concluded that, Price versatility is a positive connection
among cost and request. On the off chance that the cost of the item increments, client request the
more item and cost of the item diminishes then client is diminishes. It assists the firm with
accomplishing the benefit. It estimates the buy sum per sum per unit on the off chance that
different factors stay steady. In the event that the costs increment of the item, shoppers has on
choice to buy its substitutes item. It is the proportion of progress in amount interest and change
in item cost. Cost versatility straightforwardly affects the U.K Consumers on the grounds that the
U.K purchaser's inclination those items which is in style. In UK customers there has no
substitute’s item then it purchases the item for an extreme price it is known as inelastic. Value
flexibility depends on pay changes, changed in special costs, value changes of the item and value
changes of the connected great. Versatility cost decides organization interest assuming that

adjustment of climate and other element like cost changing and cutthroat great. The cost of good
and administrations is the vital variable to decide the flexibility of supply and demand.

REFERENCES
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Online
Price rises speed up again as economy unlocks 2021 [Online], Available
at :<https://www.bbc.com/news/business-57826826>\
Energy prices: How will the £5bn windfall tax work 2021 [Online], Availabile at:
<https://www.bbc.com/news/business-60295177>\