Microl8 Essay Example | Topics and Well Written Essays - 1250 words

Microl8 - Essay Example (c) The slope of demand function is – 2. It tells that with the increase in quantity demanded by 1 unit, price of that good or service decreases by $2 (or 2 currency units). (d) The slope of supply function is 1. It tells that with the increase in quantity supplied by 1 unit, price of that good or service increases by $1 (or 1 currency unit). ... That’s why any change in prices of food is prominent and significant for them, which makes their food demand flexible in response to its price changes; i.e. with the changes in price, they vary their food consumption accordingly. However, U.S. is a high-income country. Its consumption is diversely distributed to variety of luxury goods in addition to the necessity goods. Thus, food consumption of American people comprises of a smaller portion of their income; in fact it is much smaller if compared with a low-income country as Tanzania. That’s why any change in food prices is not so observed by them which makes their food demand almost irresponsive to price. In short, high elasticity of food demand in Tanzania imply higher level of its foods purchases as compared to that in U.S. where food purchases are not so higher as compared to the purchases of other goods – luxury goods (Parkin n.d., p. 95). Taxes S’ (= S+T) P S D Q With the imposition of tax, supply c urve shifts left as tax serves as increasing cost of production for producers. Now, the price paid by the consumer (PD) is not the same as that received by the supplier (PS) as the difference is to be paid as a tax; there would be no equilibrium now (The Impact of an Excise Tax or Subsidy on Price n.d.). It can be illustrated here in the graph that since the customer has to pay more price than before and since suppliers cost increases due to the tax, the market price would be increased and due to the increase in price, there would be leftward movement along the demand curve and thus the quantity demanded would be decreased. (a) Tax revenue would be greater from the good for which price increase would not much