Ajwad Khan Brooks IB Economics 1 May. 5 A price floor is a legally set minimum price for a good or service (Tragakes 92). This is an example of government intervention. The minimum price is set above the equilibrium price in order to reduce quantity demanded. The governments of England and Wales have decided to set a price floor for alcohol. The result will be a surplus or, in other words, an excess in supply of alcohol. Alcohol has a very price inelastic demand. The price elasticity of demand is a measure of the responsiveness of the quantity of a good demanded to the changes in its price (Tragakes 47). This price floor in England and Wales has had an effect on the sales of alcohol as illustrated in the following diagram: Diagram 1: Diagram 1 shows the effect of the price floor on vodka in England and Wales. Before a price control was enforced by the government, the equilibrium price was Pe while the equilibrium quantity was Qe. Since the demand for vodka is price inelastic, the demand curve has a very high negative slope. The price floor must be set above the equilibrium price in order to reduce the quantity bought by consumers. The new minimum price for a standard bottle of 40% vodka is £10.16 (Pf). Qd is the quantity consumers are able and willing to buy at the minimum price. However, Qs is the quantity that the vodka firms are willing and able to supply. This results in a surplus, which is an excess of supply. The surplus is equal to Qs-Qd. In the end, Qd number of vodka bottles will be bought each at a price of £10.16. The fact that vodka’s demand is price inelastic means that Qd is not significantly lower than Qe. If vodka had a price elastic demand (much flatter demand curve) and also had a minimum price of £10.16, Qd ... ... middle of paper ... ...ving a lower quantity as depicted in Box A. Producers have a tax incidence of Box B because they are receiving a lower price and selling less quantity, which results in lower total revenues. The government benefits because they receive Boxes A and B as revenue. There is, however, some welfare loss equal to Triangles C and D. Although indirect taxes do not significantly reduce consumption of alcohol and causes welfare loss, it is still preferable to price floors. The reason is consumers are still held accountable by paying most of the incidence. Government can use the revenues for other social work as opposed to producers only receiving a higher surplus from price floors. Works Cited Tragakes, Ellie. Economics for the IB Diploma. 2nd ed. Cambrdge: Cambridge Univerisity, 2012. Print. "Diagram Creator." Creately. Cinergex Propriety, 2013. Web. 4 May 2014.
21. Concerning Excise- Every time there is an increase of the fee in The Raines Liquor Law, there is an increase in the suicide record of the city. If it is a right to tax a saloonkeeper $1000, its right to put a heavy tax on dealers in other beverages- in milk, for instance- and make the dairymen pay up. If the Raines law gave the money extorted from the saloonkeepers to the city, there might be some excuse for the tax.
The LCBO utilizes an arrangement of "floor estimating", or least offering costs, utilizing value control as a component of its social obligation command to debilitate unreasonable liquor utilization. This has been censured as being a legitimately endorsed value altering instrument to assurance benefits and dishearten value rivalry, accordingly ensuring built real producers.[citation needed]
We the consumer would rather pay less for any product that is needed or want. Ultimately we are the reason for high prices as well as low prices. Prices of products do not always stay the same and more popular products have higher prices than less popular products. These fluctuations, high prices and low prices are from the idea of supply and demand. Supply and demand defines the effect that the availability of a particular product and the desire or demand for that product has on price. Generally, if there is a low supply and a high demand, the price will be high (Investopedia). To understand the idea of supply and demand, the understanding of supply and the understanding of demand must be defined. The Law of Supply states that at higher prices, producers are willing to offer more products for sale than at lower prices, also that the supply increases as prices increase and decreases as prices decrease (Curriculum Link). The Law of Demand states people will buy more of a product at a lower price than at a higher price, if nothing changes, at a lower price, more people can afford to buy more goods and more of an item more frequently, than they can at a higher price and that at lower prices, people tend to buy some goods as a substitute for others more expensive (Curriculum Link). In todays economics these ideas are seen frequently in everyday life. The laws of supply and demand are seen in many ways in the company Apple Inc. Each year Apple Inc unveils a long awaited mobile operating system and IPhone. We can also see many aspects of the law of supply and demand in Nike Inc’s Jordan Brand. Jordan Brand has released a number of...
During 1920 to 1933, the prohibition of did not fix all of the social problems it intended to that occurred because of alcohol. It made the problems worse, crimes rates skyrocketed and people’s morals and ethics went out of the window. Since the prohibition period, then the three-tier system alcohol distribution has been into effect. This system, far from perfect and may not be a hundred percent of the fix to social our problems. However, since 1933 when the three tiered alcohol distribution took effect it has managed to maintain a partial neutral ground and a fine line for beer producers and distributors to follow. Therefore, as you can see without the three-tier system in place, the manufacturing and distribution of alcohol would be chaotic and unorganized in the United States and in other countries.
Minimum wage workers are enthusiastic about Obama’s plan, but small businesses and the unemployed are not so happy about it. This proposal however is a binding price floor, which is a price minimum, in this case, established by the government. This will incentivize more people to search for work while disencouraging firms to hire new workers or even maintain their current ones. This is an example of a surplus. A surplus is “A situation in which quantity supplied is greater than quantity demanded” (Mankiw 7-1c). In this case, quanti...
Thus, a tax on whiskey had a direct impact on income. And the fines for tax violation could exceed most people’s yearly earnings. Moreover, the tax was organized so smaller distillers would pay by the gallon, while larger distillers, who could produce in volume, could take advantage of a flat fee. The net effect was that big producers could undersell smaller ones. Hogeland states, “The goal was industry consolidation”
The governments of the United States and many other countries have chosen to regulate addictive substances, like cigarettes, via taxation; minimum-age purchase laws; restrictions on consumption in schools, the workplace, and public places; and stiff fines for driving under the influence of alcohol. The prices of these substances will rise because of taxation; other forms of regulation, and bans. Thus, measuring their responsiveness to price is important in determining the optimal level of taxation and the impacts of legalization. Contrary to conventional wisdom, studies find that the consumption of addictive substances is quite sensitive to price.
People tend to believe a federal mandated minimum wage helps the poor, and counteracts poverty. Darius Ross, of the Rockland County Times, believes that “raising the minimum wage will put more money in the pockets of workers who most need to spend those dollars. It will boost consumer spending at local businesses across the state. And nothing drives business owners like me to hire additional workers more than increased consumer demand”. While Ross makes a good point that raising the minimum wage will add to the disposable income of certain people, he does not mention what this raise will actually do. Minimum wage sets a price floor. A price floor, simply stated, is a price limit placed on businesses telling them they cannot offer the good or service being sold below a certain price. A price floor creates shortages, and in the case of minimum wage, that shortage is jobs and the result is an increase in unemployment. Some economists argue federal minimum wage forces businesses to share some of the vast wealth with the people who help produce it. Businesses can exploit their workers by paying them “off the books” to avoid minimum wage, and taxes. Ag...
The law of demand states that if everything remains constant (ceteris paribus) when the price is high the lower the quantity demanded. A demand curve displays quantity demanded as the independent variable (the x-axis) and the price as the dependent variable (the y-axis). http://www.netmba.com/econ/micro/demand/curve/
...e. A price gouger needs to charge more in order to avail the product or service. In the case of Raleigh, the roads to the town were not accessible due to fallen trees and rocks. An entrepreneur would need to cut the trees and remove the rocks in order to take the product there. People who do that need compensation for all the trouble they take to bring products to the market. The youths who brought ice to Raleigh town had to cut down trees in order to access town. Instead of selling ice as the “right price” of less than 2 dollars, the youths charged more than 8 dollars. The price provided just there right compensation for all their efforts. Banning price gouging led to serious suffering of the people because the little food left went bad causing even more losses. For a few dollars for the price of ice, Raleigh residents could have saved millions worth of food.
Elasticity is also prominent to businesses. The price elasticity of demand is very important for companies to determine the price of their products and their total sales and revenue. Newell showed that by cutting the price of the Left 4 Dead game in half to $25 during a Valve promotion, its sales increased by 3000 percent (Irwin, 2009)viii.
Walmart’s sports car toys price elasticity is 2.25. This shows that it is elastic as a change in price causes a change in quantity demanded that is greater than one percent. As the price decreases, total revenue is expected to increase. This is so because the demand curve slopes downward which means a decrease in price leads to increase quantity purchased and increased receipts. Since the change in quantity was greater than the change in price, the quantity has a stronger effect and will be able to offset the price effect.
Price Elasticity is the measure in responsiveness of consumers to changes in the price of a product or service. The evaluation and consideration of this measure is a useful tool in firms making decisions about pricing and production, and in governments making decisions about revenue and regulation. “Price Elasticity is impacted by measurable factors that allow managers to understand demand and pricing for their product or service; including the availability of substitutes, the consumer budgets for the product or service, and the time period for demand adjustments.” The proper consideration of Price Elasticity allows managers to set pricing such that the effect on Total Revenue is predictable and adjustments to production are timely. The concept of Price Elasticity is employed in the management of commercial firms and government.
The market price of a good is determined by both the supply and demand for it. In the world today supply and demand is perhaps one of the most fundamental principles that exists for economics and the backbone of a market economy. Supply is represented by how much the market can offer. The quantity supplied refers to the amount of a certain good that producers are willing to supply for a certain demand price. What determines this interconnection is how much of a good or service is supplied to the market or otherwise known as the supply relationship or supply schedule which is graphically represented by the supply curve. In demand the schedule is depicted graphically as the demand curve which represents the amount of goods that buyers are willing and able to purchase at various prices, assuming all other non-price factors remain the same. The demand curve is almost always represented as downwards-sloping, meaning that as price decreases, consumers will buy more of the good. Just as the supply curves reflect marginal cost curves, demand curves can be described as marginal utility curves. The main determinants of individual demand are the price of the good, level of income, personal tastes, the population, government policies, the price of substitute goods, and the price of complementary goods.
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.