Economic Assignment Questions on Tax, Elasticity & Unemployment

QUESTION ONE     [50]

1. Assume the government of an economy raises the tax on the sale of cigarettes. Using an appropriate diagram, explain the economic impact when the burden of the tax falls on the seller.                                                                                                                                   (10)
   1. Question 1.2 a and 1.2 b is based on the following excerpt:

“Taiwan is a major world supplier of semiconductor chips. A recent earthquake severely damaged the production facilities of Taiwanese chip-producing companies, sharply reducing the amount of chips they could produce.”

1.2 a. Assume that the total revenue of a typical non-Taiwanese chip manufacturer rises due to these events. In terms of an elasticity, what must be true for this to happen? Illustrate the change in total revenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake on this company’s total revenue.                                                                                                                                               (10)

• b. Now assume that the total revenue of a typical non-Taiwanese chip manufacturer falls due to these events. In terms of an elasticity, what must be true for this to happen? Illustrate the change in total revenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake on this company’s total revenue.                                                                                                                               (10)
  • “A business environment’s features inherently limit maximum economic profit. Firms must adapt strategically to sustain profitability within these constraints.”

In terms of the above statement, discuss two (2) features of a business environment that limits the maximum economic profit it can make.                                                                                                                                               (20)

QUESTION TWO               [20]

Evaluate the type of unemployment that is linked to the business cycle. Include in your answer a discussion of two (2) main other types of unemployment.

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Economics Assignment Answers: Expert Answers on Above Economics Questions

Impact of cigarette tax button on seller
The increase of tax by the government on cigarettes leads to the burden on the seller and the supply curve shifts to the left. The revenue per unit available to the seller is lower which reduces supply. There would be an increase in the equilibrium price but if the demand is inelastic, it is the seller that bears the burden of tax. The resulting impact is the lower profit to the seller because of higher cost to be borne and it may result in exit from the market.
Total revenue Rises
In the event of an increase in total revenue of non Taiwanese chip makers, the demand would be inelastic. In the instance of an earthquake, the supply of Taiwanese chips would fall and it would increase the chip prices worldwide. The percentage increase in the price would be greater than the percentage increase in quantity in case of elastic demand and ultimately the revenue rises.
Fall in the total revenue
The demand for non-Taiwanese chips must be elastic in case if the total revenue falls. There would be lower revenue even though an increase in the price.

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