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7.15 The Choice between Import Tariffs and Quotas

Learning Objectives

1. Understand the pros and cons of applying tariffs versus quotas.

2. Learn how tariffs differ from quotas in their protective effects in the face of market changes.

There are two basic ways to provide protection to domestic import-competing industries: a tariff or a quota. The choice between one or the other is likely to depend on several concerns.

One concern is the revenue effects. A tariff has an immediate advantage for governments in that it will automatically generate tariff revenue (assuming the tariff is not prohibitive). Quotas may or may not generate revenue depending on how the quota is administered. If a quota is administered by selling quota tickets (i.e., import rights), then a quota will generate government revenue; however, if the quota is administered on a first-come, first-served basis or if quota tickets are given away, then no revenue is collected.

Administrative costs of tariffs and quotas are also likely to differ. Tariff collection involves product identification, collection, and processing of fees. Quota administration will also involve product identification and some method of keeping track of, or counting, the product as it enters the country in multiple ports of entry. It may also involve some method of auctioning or disbursing quota tickets. It is not obvious which of these two procedures would be less costly, although a good guess would be tariff collection.

Perhaps the most important distinction between the two policies, however, is the protective effect the policy has on the import-competing industries. In one sense, quotas are more protective of the domestic industry because they limit the extent of import competition to a fixed maximum quantity. The quota provides an upper bound to the foreign competition the domestic industries will face. In contrast, tariffs simply raise the price but do not limit the degree of competition or trade volume to any particular level.

In the original General Agreement on Tariffs and Trade (GATT), a preference for the application of tariffs rather than quotas was introduced as a guiding principle. One reason was the sense that tariffs allowed for more market flexibility and thus could be expected to be less protective over time. Another reason concerned transparency. With a quota in place, it is very difficult to discern the degree to which a market is protected since it can be difficult to measure how far the quota is below the free trade import level. With a tariff in place, especially an ad valorem tariff, one can use the tariff percentage as a measure of the degree of protection.

Also, it was considered somewhat easier to negotiate reductions in tariff rates than quota increases during GATT rounds of trade liberalization. Again, the issue of transparency arises. Trade liberalization agreements generally target a fixed percentage for tariff reductions. For example, countries might agree to reduce average tariffs by 30 percent from their current levels. This rule would be perceived as being equal reciprocation in that each country would be liberalizing to the same degree. Hence the agreement could be judged to be fair. However, with quotas in place, it would be difficult, if not impossible, to apply such a straightforward type of fairness principle.

For this reason, current World Trade Organization (WTO) member countries agreed in the Uruguay Round to phase out the use of quotas, used primarily in agriculture industries. Instead, countries will apply tariffs that are equivalent in their market effects to the original quotas. This adjustment is referred to as tariffication. In this way, future rounds of trade liberalization negotiations will be able to use fair reciprocal concessions to bring these tariffs down further.

The Protective Effects of Tariffs versus Quotas with Market Changes

One of the main concerns in choosing between tariffs or quotas is the protective effect of the policy. Although tariffs and quotas are generally equivalent to each other in terms of their static price and welfare effects, this equivalence does not remain true in the face of market changes. In the next sections we consider three such market changes: an increase in domestic demand, an increase in domestic supply, and a decrease in the world price. In each case, we compare the protective effects of a tariff and a quota for the domestic import-competing industries.

An Increase in Domestic Demand

Consider Figure 7.28 "Effects of a Demand Increase", which depicts a small importing country. P is the free trade price. If a tariff of T is put into place, the domestic price rises to P and imports equal D − S. A quota set equal to Q (the blue line segment) would generate the same increase in price to P and the same level of imports. Thus the tariff T and quota Q are said to be equivalent to each other.

Next, consider the effects in this market when there is an increase in domestic demand, represented by a rightward shift of the demand curve. A demand increase could arise because of rising incomes in the country or because consumers' preferences become more favorable to this product.

With a tariff in place initially, the increase in domestic demand will leave the domestic price unaffected. Because this is a small country, the world price does not change and thus the domestic tariff-inclusive price remains at P = P + T. Domestic supply also remains at S, but demand rises to D′, causing an increase in imports to D′ − S.

The protective effect of the tariff or quota means the degree to which the domestic producers are protected in the face of the market change. Since the domestic price rises more with the quota in place than with the tariff, domestic producers will enjoy a larger supply and consequently a higher level of producer surplus (not shown). Thus the quota is more protective than a tariff in the face of an increase in domestic demand.

An Increase in Domestic Supply

Again, consider a small importing country. In Figure 7.29 "Effects of a Supply Increase", P is the free trade price. If a tariff of T is put into place, the domestic price rises to P and imports equal D − S. A quota set equal to Q (the blue line segment) would generate the same increase in price to P and the same level of imports. Thus the tariff T and quota Q are said to be equivalent to each other.

Next, consider the effects in this market when there is an increase in domestic supply, represented by a rightward shift of the supply curve. A supply increase could arise because of falling production costs or due to improvements in productivity.

With a tariff in place initially, the increase in domestic supply will leave the domestic price unaffected. Because this is a small country, the world price does not change and thus the domestic tariff-inclusive price remains at P = P + T. However, because domestic supply is now higher at every price, at the price P, supply equals domestic demand of D. This means that with the tariff, imports are reduced to zero.

With a quota in place initially, the increase in domestic supply causes the domestic price to fall back to the free trade level in order to maintain the import level at the level Q (the lower blue line segment). Domestic supply will rise to S′ with the decrease in price, while domestic demand also will rise to D ′.

A Decrease in the World Price

Again, consider a small importing country. In Figure 7.30 "Effects of a World Price Decrease", P is the free trade price. If a tariff of T is put into place, the domestic price rises to P and imports equal D − S. A quota set equal to Q (the blue line segment) would generate the same increase in price to P and the same level of imports. Thus the tariff T and quota Q are said to be equivalent to each other.

With a tariff in place initially, the decrease in the world price will cause a reduction in the domestic price. Because this is a small country, when the world price falls, the domestic tariff-inclusive price also falls to P′ = P′ + T. With the lower price, domestic supply falls to S′, while domestic demand rises to D′. This means that with the tariff in place, imports rise to D′ − S ′.

With a quota in place initially, the decrease in the world free trade price has no effect on the domestic price. The domestic price remains at P since this is the only price that will support the quota Q.

The General Rule

What we can conclude from the three examples above is that when market conditions change such that imports increase, a quota is more protective than a tariff. This will occur if domestic demand increases, domestic supply decreases, the world price falls, or if some combination of these things occur.

In situations where market changes cause a decrease in imports, a tariff is more protective than a quota. This occurs if domestic demand falls, domestic supply rises, the world price rises, or some combination of these changes occurs.

Since protection is often provided due to the insistence of the domestic import-competing industries-rather than a more comprehensive concern for the general welfare of the country-and since import-competing firms are generally more concerned about situations where imports may increase, industry preferences usually favor quotas over tariffs since quotas will be more protective in these situations. Other government concerns, such as revenue needs, ease of administration, or participation in trade agreements like the GATT/WTO, which contain a preference of tariffs over quotas, have resulted in the widespread application of tariffs rather than quotas in most instances.

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The Choice between Import Tariffs and Quotas

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Understand the pros and cons of applying tariffs versus quotas. Learn how tariffs differ from quotas in their protective effects in the face of market changes. There are two basic ways to provide protection to domestic import-competing industries: a tariff or a quota. The choice between one or the other is likely to depend on several concerns.

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TORONTO - The number of homes sold in Toronto and the surrounding area fell in 2018, along with the number of new listings hitting the market, as homebuyers and sellers grappled with a new reality of higher interest rates and stricter mortgage rules.

The Toronto Real Estate Board says there were 77,426 residential transactions recorded through its Multiple Listing Service (MLS) system last year, down 16.1 per cent from 92,263 sales in 2017.

The board says the total number of new listings was also lower, pulling back 12.7 per cent to 155,823 in 2018.

Meanwhile, the average selling price for all property types in the Greater Toronto Area fell by 4.3 per cent to $787,300.

TREB, which represents more than 52,000 real estate agents across the region, says the number of sales in December fell 22.5 per cent to 3,781, down from 4,876 in the same month a year earlier.

The average sale price in December rose slightly by 2.1 per cent to $750,180 from $734,847 when compared to December 2017.

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Toronto home sales drop 16% in 2018 in new reality of higher rates and stricter mortgage rules

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TORONTO - The number of homes sold in Toronto and the surrounding area fell in 2018, along with the number of new listings hitting the market, as homebuyers and sellers grappled with a new reality of higher interest rates and stricter mortgage rules.

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Jobless growth for a booming youth population, graduate unemployment and the skills challenge of the 4IR were questions with which participants grappled during the Youth Employment and Skills Chapter meeting of the recent African Transformation Forum.

Since 1990, most economies in Sub-Saharan Africa have seen some level of growth, buoyed by reforms in macroeconomic management, an improved business environment, and commodity price hikes. But this growth has not translated into productive jobs -a major problem for a region with a booming youth population.

According to the United Nations, Sub-Saharan Africa boasts the world's youngest population with more than three-fifths of its inhabitants under the age of 25. The region's working age population is estimated to rise from 522 million in 2015 to 600 million, an increase of 45 percent by 2030.

But the current labour market and education outlook are challenging. In most African countries, more than 80 percent of workers are in the informal sector. According to the International Monetary Fund, much of Africa's share of GDP and employment comes from the informal economy. Whereas in the past the unemployed and those in the informal sector in Africa were mainly the uneducated, now the face of unemployment and the urban informal sector in lower middle-income countries is becoming that of the secondary or tertiary school graduate. And in low-income countries, even though the youth are entering the job market in unprecedented numbers, underemployment is gaining traction. Although significant progress has been made on access to primary education in Africa, the quality of education remains low, according to the Brookings Center for Universal Education, as do levels of attainment.

There are many reasons for growing unemployment among Africa's educated youth, including more secondary level graduates due to the growing population, a rapid increase in access to primary school, and improving access to secondary and tertiary institutions. At the same time, the pace of expansion in job demand in Africa's formal sectors has not matched the pace of graduation from secondary and tertiary institutions, while graduates cannot meet all the job demand in the formal sector because of the poor quality of their education.

Global trends are not helping matters, either. The rapid evolution of robotics, 3-D printing (or additive manufacturing technology), artificial intelligence, and the "Internet-of-Things"-known as the Fourth Industrial Revolution (4IR)-is projected to fundamentally disrupt manufacturing technology, with significant implications for the future and nature of jobs. The downside of disruption could be significant job losses owing to workers being replaced by technology and machines, as well as changes to the nature and location of work. Countries need to ensure people have the skills they need to minimize these future impacts-and help drive transformation in the process. On the other hand, it could be argued that the 4IR offers new opportunities to create jobs through modernized agriculture and export-led manufacturing, as well as modernized services, tourism and the creative industries.

What should Africa do-particularly considering its bulging youth population, which needs the appropriate skills to graduate into good jobs?

This was one of the many questions addressed at the 2018 African Transformation Forum (ATF2018), which was recently held in Accra, Ghana, and organized by the African Center for Economic Transformation (ACET). The two-day forum brought together hundreds of like-minded stakeholders to discuss policy issues to be addressed through the Pan-African Coalition for Transformation (PACT), a platform that allow governments, policy makers, and other like-minded stakeholders to share knowledge and experiences and to collaborate in driving the design and implementation of innovative policies for economic transformation. PACT is composed of thematic chapters, including one centred on Youth Employment and Skills (YES). The YES chapter focuses on the levers through which youth unemployment can be reduced by enhancing skills development to help meet the future jobs needs for young people.

The ATF2018 working session of the YES Chapter was well-attended, and rightly so. Its high-level participants were clearly eager to create momentum. When Rosemond Offei-Awuku, the African Development Bank's Chief Development Economist under the Jobs for Youth in Africa Initiative, suggested that the Chapter needed a champion country to host and spearhead discussions on addressing youth and employment as well as the growing skills gap, the room responded with applause.

By the end of the all-day working session, the YES Chapter reached consensus on four other critical areas:

The need for a comprehensive database on labour market projections, entrepreneurs, and skills gaps.

Increased peer-to-peer learning, tailored to each country's vision, to help facilitate interaction between policy makers, academia and the private sector, and to help monitor progress.

A deliberate policy action for African countries (such as the 2003 Maputo declaration, in which governments agreed to a 10 percent national budgetary allocation for agriculture), spearheaded by the PACT YES chapter, to increase policy focus on technical and vocational institutions across sub-Saharan Africa, including an increase in funding.

A collective shift in mindset toward more technical and vocational training across the entire education ecosystem-including teachers, parents, policy makers, and the private sector-accompanied by innovative approaches to policy design.

Resources alone are not enough to ensure Africa's young people secure productive work amid a changing labour market. The key is ensuring that they gain the skills they need through the education system, while also ensuring that private sector and individuals generate jobs. Reformed curricula that are innovative enough to meet current and evolving labour demands-and a deliberate government policy that increases spending and allocates resources to technical and vocational training-needs immediate attention. The working session of the PACT's Youth Employment and Skills Chapter at ATF2018 offered an encouraging step in the right direction, and it showed that necessary momentum continues to build.
George Boateng is the Engagement Manager of the PACT YES Chapter at the African Center for Economic Transformation.

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The challenging problem of labour and youth education: A wake up call for Africa

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Jobless growth for a booming youth population, graduate unemployment and the skills challenge of the 4IR were questions with which participants grappled during the Youth Employment and Skills Chapter meeting of the recent African Transformation Forum. Since 1990, most economies in Sub-Saharan Africa have seen some level of growth, buoyed by reforms in macroeconomic management, an improved business environment, and commodity price hikes.

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Test on Market Structure and Externality Review

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Test on Market Structure and Externality Review

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Quiz on Market Structure and Externalities

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Chapter 33. International Trade

Learning Objectives

By the end of this section, you will be able to:

Define absolute advantage, comparative advantage, and opportunity costs

Explain the gains of trade created when a country specializes

The American statesman Benjamin Franklin (1706-1790) once wrote: "No nation was ever ruined by trade." Many economists would express their attitudes toward international trade in an even more positive manner. The evidence that international trade confers overall benefits on economies is pretty strong. Trade has accompanied economic growth in the United States and around the world. Many of the national economies that have shown the most rapid growth in the last few decades-for example, Japan, South Korea, China, and India-have done so by dramatically orienting their economies toward international trade. There is no modern example of a country that has shut itself off from world trade and yet prospered. To understand the benefits of trade, or why we trade in the first place, we need to understand the concepts of comparative and absolute advantage.

In 1817, David Ricardo, a businessman, economist, and member of the British Parliament, wrote a treatise called On the Principles of Political Economy and Taxation. In this treatise, Ricardo argued that specialization and free trade benefit all trading partners, even those that may be relatively inefficient. To see what he meant, we must be able to distinguish between absolute and comparative advantage.

A country has an absolute advantage in producing a good over another country if it uses fewer resources to produce that good. Absolute advantage can be the result of a country's natural endowment. For example, extracting oil in Saudi Arabia is pretty much just a matter of "drilling a hole." Producing oil in other countries can require considerable exploration and costly technologies for drilling and extraction-if indeed they have any oil at all. The United States has some of the richest farmland in the world, making it easier to grow corn and wheat than in many other countries. Guatemala and Colombia have climates especially suited for growing coffee. Chile and Zambia have some of the world's richest copper mines. As some have argued, "geography is destiny." Chile will provide copper and Guatemala will produce coffee, and they will trade. When each country has a product others need and it can be produced with fewer resources in one country over another, then it is easy to imagine all parties benefitting from trade. However, thinking about trade just in terms of geography and absolute advantage is incomplete. Trade really occurs because of comparative advantage.

Recall from the chapter Choice in a World of Scarcity that a country has a comparative advantage when a good can be produced at a lower cost in terms of other goods. The question each country or company should be asking when it trades is this: "What do we give up to produce this good?" It should be no surprise that the concept of comparative advantage is based on this idea of opportunity cost from Choice in a World of Scarcity. For example, if Zambia focuses its resources on producing copper, its labor, land and financial resources cannot be used to produce other goods such as corn. As a result, Zambia gives up the opportunity to produce corn. How do we quantify the cost in terms of other goods? Simplify the problem and assume that Zambia just needs labor to produce copper and corn. The companies that produce either copper or corn tell you that it takes 10 hours to mine a ton of copper and 20 hours to harvest a bushel of corn. This means the opportunity cost of producing a ton of copper is 2 bushels of corn. The next section develops absolute and comparative advantage in greater detail and relates them to trade.

Visit this website for a list of articles and podcasts pertaining to international trade topics.

Consider a hypothetical world with two countries, Saudi Arabia and the United States, and two products, oil and corn. Further assume that consumers in both countries desire both these goods. These goods are homogeneous, meaning that consumers/producers cannot differentiate between corn or oil from either country. There is only one resource available in both countries, labor hours. Saudi Arabia can produce oil with fewer resources, while the United States can produce corn with fewer resources. Table 1 illustrates the advantages of the two countries, expressed in terms of how many hours it takes to produce one unit of each good.

In Table 1, Saudi Arabia has an absolute advantage in the production of oil because it only takes an hour to produce a barrel of oil compared to two hours in the United States. The United States has an absolute advantage in the production of corn.

To simplify, let's say that Saudi Arabia and the United States each have 100 worker hours (see Table 2). We illustrate what each country is capable of producing on its own using a production possibility frontier (PPF) graph, shown in Figure 1. Recall from Choice in a World of Scarcity that the production possibilities frontier shows the maximum amount that each country can produce given its limited resources, in this case workers, and its level of technology.

Country

Oil Production using 100 worker hours (barrels)

Corn Production using 100 worker hours (bushels)

Saudi Arabia

100

or

25

United States

50

or

100

Table 2. Production Possibilities before Trade

Arguably Saudi and U.S. consumers desire both oil and corn to live. Let's say that before trade occurs, both countries produce and consume at point C or C'. Thus, before trade, the Saudi Arabian economy will devote 60 worker hours to produce oil, as shown in Table 3. Given the information in Table 1, this choice implies that it produces/consumes 60 barrels of oil. With the remaining 40 worker hours, since it needs four hours to produce a bushel of corn, it can produce only 10 bushels. To be at point C', the U.S. economy devotes 40 worker hours to produce 20 barrels of oil and the remaining worker hours can be allocated to produce 60 bushels of corn.

The slope of the production possibility frontier illustrates the opportunity cost of producing oil in terms of corn. Using all its resources, the United States can produce 50 barrels of oil or 100 bushels of corn. So the opportunity cost of one barrel of oil is two bushels of corn-or the slope is 1/2. Thus, in the U.S. production possibility frontier graph, every increase in oil production of one barrel implies a decrease of two bushels of corn. Saudi Arabia can produce 100 barrels of oil or 25 bushels of corn. The opportunity cost of producing one barrel of oil is the loss of 1/4 of a bushel of corn that Saudi workers could otherwise have produced. In terms of corn, notice that Saudi Arabia gives up the least to produce a barrel of oil. These calculations are summarized in Table 4.

Again recall that comparative advantage was defined as the opportunity cost of producing goods. Since Saudi Arabia gives up the least to produce a barrel of oil, (1414 < 22 in Table 4) it has a comparative advantage in oil production. The United States gives up the least to produce a bushel of corn, so it has a comparative advantage in corn production.

In this example, there is symmetry between absolute and comparative advantage. Saudi Arabia needs fewer worker hours to produce oil (absolute advantage, see Table 1), and also gives up the least in terms of other goods to produce oil (comparative advantage, see Table 4). Such symmetry is not always the case, as we will show after we have discussed gains from trade fully. But first, read the following Clear It Up feature to make sure you understand why the PPF line in the graphs is straight.

Consider the trading positions of the United States and Saudi Arabia after they have specialized and traded. Before trade, Saudi Arabia produces/consumes 60 barrels of oil and 10 bushels of corn. The United States produces/consumes 20 barrels of oil and 60 bushels of corn. Given their current production levels, if the United States can trade an amount of corn fewer than 60 bushels and receives in exchange an amount of oil greater than 20 barrels, it will gain from trade. With trade, the United States can consume more of both goods than it did without specialization and trade. (Recall that the chapter Welcome to Economics! defined specialization as it applies to workers and firms. Specialization is also used to describe the occurrence when a country shifts resources to focus on producing a good that offers comparative advantage.) Similarly, if Saudi Arabia can trade an amount of oil less than 60 barrels and receive in exchange an amount of corn greater than 10 bushels, it will have more of both goods than it did before specialization and trade. Table 5 illustrates the range of trades that would benefit both sides.

The U.S. Economy, after Specialization, Will Benefit If It:

The Saudi Arabian Economy, after Specialization, Will Benefit If It:

Exports no more than 60 bushels of corn

Imports at least 10 bushels of corn

Imports at least 20 barrels of oil

Exports less than 60 barrels of oil

Table 5. The Range of Trades That Benefit Both the United States and Saudi Arabia

The underlying reason why trade benefits both sides is rooted in the concept of opportunity cost, as the following Clear It Up feature explains. If Saudi Arabia wishes to expand domestic production of corn in a world without international trade, then based on its opportunity costs it must give up four barrels of oil for every one additional bushel of corn. If Saudi Arabia could find a way to give up less than four barrels of oil for an additional bushel of corn (or equivalently, to receive more than one bushel of corn for four barrels of oil), it would be better off.

Recall that David Ricardo argued that if each country specializes in its comparative advantage, it will benefit from trade, and total global output will increase. How can we show gains from trade as a result of comparative advantage and specialization? Table 6 shows the output assuming that each country specializes in its comparative advantage and produces no other good. This is 100% specialization. Specialization leads to an increase in total world production. (Compare the total world production in Table 3 to that in Table 6.)

What if we did not have complete specialization, as in Table 6? Would there still be gains from trade? Consider another example, such as when the United States and Saudi Arabia start at C and C', respectively, as shown in Figure 1. Consider what occurs when trade is allowed and the United States exports 20 bushels of corn to Saudi Arabia in exchange for 20 barrels of oil.

Starting at point C, reduce Saudi Oil production by 20 and exchange it for 20 units of corn to reach point D (see Figure 2). Notice that even without 100% specialization, if the "trading price," in this case 20 barrels of oil for 20 bushels of corn, is greater than the country's opportunity cost, the Saudis will gain from trade. Indeed both countries consume more of both goods after specialized production and trade occurs.

A country has an absolute advantage in those products in which it has a productivity edge over other countries; it takes fewer resources to produce a product. A country has a comparative advantage when a good can be produced at a lower cost in terms of other goods. Countries that specialize based on comparative advantage gain from trade.

Krugman, Paul R. Pop Internationalism. The MIT Press, Cambridge. 1996.

Krugman, Paul R. "What Do Undergrads Need to Know about Trade?" American Economic Review 83, no. 2. 1993. 23-26.

Ricardo, David. On the Principles of Political Economy and Taxation. London: John Murray, 1817.

Ricardo, David. "On the Principles of Political Economy and Taxation." Library of Economics and Liberty. http://www.econlib.org/library/Ricardo/ricP.html.

Glossary

absolute advantage

when one country can use fewer resources to produce a good compared to another country; when a country is more productive compared to another country

gain from trade

a country that can consume more than it can produce as a result of specialization and trade

Solutions
Answers to Self-Check Questions

1. False. Anything that leads to different levels of productivity between two economies can be a source of comparative advantage. For example, the education of workers, the knowledge base of engineers and scientists in a country, the part of a split-up value chain where they have their specialized learning, economies of scale, and other factors can all determine comparative advantage.

2. Brazil has the absolute advantage in producing beef and the United States has the absolute advantage in autos. The opportunity cost of producing one pound of beef is 1/10 of an auto; in the United States it is 3/4 of an auto.

3. In answering questions like these, it is often helpful to begin by organizing the information in a table, such as in the following table. Notice that, in this case, the productivity of the countries is expressed in terms of how many workers it takes to produce a unit of a product.

Country

One Sweater

One Bottle of wine

France

1 worker

1 worker

Tunisia

2 workers

3 workers

Table 7.

In this example, France has an absolute advantage in the production of both sweaters and wine. You can tell because it takes France less labor to produce a unit of the good.

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Chapter 33. International Trade By the end of this section, you will be able to: Define absolute advantage, comparative advantage, and opportunity costs Explain the gains of trade created when a country specializes The American statesman Benjamin Franklin (1706-1790) once wrote: "No nation was ever ruined by trade."

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AS Economics Revision - Aggregate Demand Quiz 1

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Amartya Sen: A More Human Theory of Development

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"Silence is a powerful enemy of social justice," cautions the Indian Nobel Laureate in Economics.

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Growth vs Development: Nobel winner Amartya Sen discusses way ahead for India with NDTV

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Practice questions on supply and demand analysis

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Assignment 1: supply and demand analysis

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Assignment 1: supply and demand analysis

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Economics Demand and supply analysis assignment

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Natural resources are an important component of natural conditions. They include mainly land resources, water resources, climatic resources, biological resources and mineral resources. China has rich natural resources.

Being a vast country, China first of all has rich land resources. The country's farmland covers 122,400 sq. km, about 10% of its total land area, and is distributed mainly in plain areas in northeast China, north China, the middle and lower reaches of the Yangtze, the Sichuan Basin and the Pearl River Delta. Agriculture is highly developed in these areas, which are major producers of wheat, corn, rice and cash crops. The country has 67,500 sq. km of fresh water lakes -- production bases for fish, shrimps and other aquatic products.

With regard to water resources: China's average total rainfall in a year amounts to 6 trillion cubic meters; the total runoff of its rivers is 2.7 trillion cubic meters; and its total water resources reach 2.8 trillion cubic meters, to rank sixth in the world, after Brazil, Russia, Canada, the United States and Indonesia. Theoretical hydropower resources provided by the country's rivers amount to 676 million kw, of Which 378 million kw can be exploited for power generation, ranking first in the world. The distribution of such hydropower resources is uneven: they are concentrated in southwest China.

China has deposits of every one of the 150 minerals found so far in the natural world. The amount of proven deposits in the country has been made clear for 135 of them. Of these, more than 20 rank in the forefront of the world. Ranking first in the world, in proven deposits, are 12 minerals: tungsten, antimony, titanium, vanadium, zinc, rare earth, magnesite, pyrite, fluorite, barite, plaster stone and graphite; ranking second and third are six: tin, mercury, asbestos, talcum, coal and molybdenum; and ranking fourth are five: nickel, lead, iron, manganese and the platinum family. China ranks third in the world in the deposit of 45 important minerals. It is one of a few countries where mineral deposits are rich and varieties are fairly complete.

China has fairly rich plant and animal resources. It is home to 32,800 higher plant varieties and 104,000 animal varieties. Among them are some that are quite rare, including the giant panda, the golden monkey, the Yangtze alligator, white-flag dolphin, the metasequoia and the dove tree - all are "living fossils" that are found nowhere else. To protect wildlife and its ecological environment, China has built a fairly big number of nature reserves, including fourteen that are part of the United Nations' "Man and Biosphere" nature reserve system.

China also has vast tidal beach land and rich marine resources. Of its 280,000 sq. km of offcoast sea areas, 260,000 sq. km are fit for aquiculture. Its tidal beach land covers 20,800 sq. km. The country's salt pans produce 17 million tons of salt a year, one third of the world's total. This output ranks China as the biggest salt producer in the world. Marine fish varieties number more than 2,600, including more than 50 that are of high economic value. The country's marine fishing Industry and aquiculture are of considerable size. In the country's territorial waters have been found more than 20 minerals, including petroleum, natural gas, iron, copper, phosphorite and glauconite. Extraction has begun for some of them. Petroleum, for example, is being produced from the Beibu Gulf of the South China Sea and from the Bohai Sea off north China. China's marine energy resources are estimated to reach 540 million kw. Development on a small scale has also begun. For example, tidal waves have been used to generate power.

In absolute terms, China indeed abounds in natural resources of various kinds. But, owing to its huge population, its per-capita natural resources, such as land, water and mineral resources, are not rich. Besides, the geographical distribution of its natural resources is not even. Take coal for example: of more than 760 billion tons of total coal deposits, more than 70% are concentrated in Shanxi, Shaanxi and Inner Mongolia, whereas only 1.4% is found in nine provinces in southern China. Of proven recoverable oil deposits, most are found in northeast China, northwest China and coastal areas of north China. 70% of natural gas deposits is concentrated in Sichuan and Shaanxi. The geographical distribution of water is also extremely uneven: in southern China -- areas south of the Huaihe river and the Qinling range, while farmland accounts for only 36.3% of the national total, water resources make up 82.3% of the national total; whereas, in northern China, farmland accounts for 63.7% of the national total, water resources make up only 17.7% of the national total; in northwest China, water is even more scarce: while it has one third of the national land area, its water resources account for only 5% of the na tional total. The distribution of hydropower is also uneven: 70% of the national total is concentrated in southwest China. The Chinese government has been taking measures to deal with the problem. Researches on the issue have been strengthened and overall planning conducted. Concrete measures include the construction of railways to trans- port more coal from the north to the south and the building of a giant water diversion project to channel water from the Yangtze to the Yellow River to quench thirst in north China and northwest China.

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Natural resources are an important component of natural conditions. They include mainly land resources, water resources, climatic resources, biological resources and mineral resources. China has rich natural resources. Being a vast country, China first of all has rich land resources. The country's farmland covers 122,400 sq.

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This article described the core functions of a central bank. It lists down some of the most important functions that help the central bank maintain decorum and stability in the economy.

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School code
002223
Name of school
The Sultan's School
Candidate number
0028
Candidate name
Momina Amjad

Candidate name Momina Amjad
Candidate number 002223-0028
Teacher Paul Bird
Title of the article Spain unemployment hits record high on recession
fears
Source of article Huffington Post Business
Date the article was published 25
th
April 2013
Date the commentary was written 14
th
December 2013
Word count (750 words maximum) 747
Section of the syllabus
Please tick the one that is most
relevant

 Section 1: Microeconomics

 Section 2: Macroeconomics

 Section 3: International economics

 Section 4: Development economics

http://www.huffingtonpost.com/2013/04/25/spain-unemployment-hits-record-high_n_3153508.html
Date Accessed: 14
th
Dec 2013

Spain Unemployment Hits Record High
On Recession Fears
Reuters | By Paul Day Posted: 04/25/2013 7:50 am EDT | Updated: 04/26/2013 10:12 am EDT

MADRID, April 24 (Reuters) - More than six million Spaniards were out of work in the first
quarter of this year, raising the jobless rate in the euro zone's fourth biggest economy to 27.2
percent, the highest since records began in the 1970s.
The huge sums poured into the global financial system by major central banks have eased
bond market pressure on Spain, but the cuts Madrid has made in spending to regain investors'
confidence have left it deep in recession.
Unemployment - 6.2 million in the first quarter - has been rising for seven quarters and the
latest numbers will fuel a growing debate on whether to ease off on the budget austerity which
has dominated Europe's response to the debt crisis.
"These figures are worse than expected and highlight the serious situation of the Spanish
economy as well as the shocking decoupling between the real and the financial economy,"
strategist at Citi in Madrid Jose Luis Martinez said.
Jobseekers stand in line outside an employment office before
opening in Madrid, Spain, on Wednesday, April 3, 2013. Spain's
government is waiting for the result of negotiations with the European
Union on its budget deficit goals before deciding on its tax policy for
2014. Photographer: Angel Navarrete/Bloomberg via Getty Images

* Unemployment hits 27.2
percent in Q1
* Worse than expected
figure highlights market
decoupling
* Reforms aimed at boosting
economy due on Friday

http://www.huffingtonpost.com/2013/04/25/spain-unemployment-hits-record-high_n_3153508.html
Date Accessed: 14
th
Dec 2013

The collapse of a property boom driven by cheap credit has seen millions in the construction
sector laid off since 2009 and private service sector, worth almost half gross domestic
product, has followed as Spaniards tightened purse strings and investment plummeted.
The malaise has been made worse by billions of euros in state spending cuts and tax hikes to
reduce one of the euro zone's highest deficits and convince nervous markets Spain can control
its finances.
Spain and Italy's costs of borrowing hit their lowest in more than two years this week and EU
officials have begun to talk openly of easing up on deficit targets.
Prime Minister Mariano Rajoy said earlier this week that a new reform plan, to be announced
on Friday, would not include more austerity measures in an effort to calm increasingly
desperate Spaniards and reassure investors the country will soon be able to grow.
Protests have become commonplace across the country and thousands of police have been
drafted in to Madrid to handle a march on Parliament on Thursday.
But few believe the government's plans will be ambitious enough to restart the ailing economy
and create jobs. The International Monetary Fund sees Spanish unemployment at 26.5
percent next year.

Macroeconomics IA Candidate Number: 002223-0028
1

The article is about rising Spanish unemployment which hit a record high of 27.2% or 6.2 million
people in the first quarter of 2013. This means 27.2% of Spanish people of working age are
looking for work yet they cannot find it. This carries many social and economic costs; society
suffers from increased poverty, homelessness and higher rates of crime, and economically, Spain
is at a point within its production possibility curve due to loss of output. It is important to consider
the source of Spain's unemployment to suggest any possible solutions for it.
According to the article, there is a growing debate about "budget austerity" which was the EU's
response to the 2008 financial crisis. Austerity measures involve spending cuts and tax increases;
i.e. a contractionary fiscal policy aimed at reducing aggregate demand (AD). It is evident that one
of the chief causes of Spanish unemployment is decreased demand; leading to demand-deficient
or cyclical unemployment. Tax increases cause consumers to spend less on goods and services,
triggering the firms to cut production and thus require less workers. Furthermore, there might
be reduced investment due to higher corporate taxes resulting in further fall in the demand of
labor. The diagram below illustrates demand-deficient unemployment:

Here, aggregate demand has fallen from ADL to ADL1. The previous equilibrium b shifts to the new
equilibrium c. This should mean that the real wage should fall from We to W1, but in reality that
doesn't happen. Average real wages in Spain and elsewhere are "sticky downwards"- real wage
may increase after some time but it's very unlikely that it will decrease because firms don't want
to demotivate workers. Moreover, there is significant trade union power in Spain
1
that tries to
ensure that real wage doesn't drop. So the end result is that unemployment a-b is created. Since
wages don't drop, firms employ less people and workers are laid off.

1
Köhler, Holm-Detlev and José Pablo Calleja Jiménez. Trade Unions in Spain: Organization, Environment,
Challenges. 2013. 17. E-book.
ADL ADL1
AS
A
v
e
r
a
g
e

r
e
a
l

w
a
g
e

r
a
t
e

Number of workers
Q1 Qe
We
W1
c
a b
0
Spanish labor market
Macroeconomics IA Candidate Number: 002223-0028
2

Spain also suffers from other types of unemployment. The article mentions "millions in the
construction sector laid off since 2009" due to the collapse of the property boom. This signifies
structural unemployment in Spain; there is a permanent fall in the demand for construction
workers. This becomes problematic when workers don't have skills to do the jobs that are
required in the economy and lack occupational mobility. Prolonged demand-deficient
unemployment, as is the case in Spain, also leads to structural unemployment. Often new forms
of labor are required when the economy picks up for the changing economic climate. Although
not stated in the article, Spain also suffers from significant seasonal unemployment due to its
tourism sector being most active during the summer, after which many young people become
unemployed
2
.
The solutions to Spain's unemployment are diverse and complex due to there being various
unemployment types. Demand-deficient unemployment can be solved by increasing aggregate
demand via expansionary fiscal and monetary policies. Lower taxes and lower interest rates
would urge consumers to spend more and save less, thereby increasing consumption; it would
also promote investment, both increasing the aggregate demand level. However, this demand
side policy is only a short term solution and is not necessarily guaranteed to work due to low
consumer or business confidence in a difficult economic climate.
Structural and seasonal unemployment require reshaping of the entire labor market, which is
much harder to achieve. This is a long term supply-side solution wherein the LRAS curve shifts to
the right or the production possibility curve moves outwards. This involves training the workforce
to be more occupationally flexible so that workers can change jobs easily. Apprenticeship
programs that train the youth to adapt to changing economic conditions are required. Retraining
programs for adults that reskill them in jobs other than construction are also important because
it decreases Spain's dependence on the construction sector. The government can also subsidize
firms that provide training for their workers. However, all of these policies have a high
opportunity cost- Spain has to forego spending in other areas to be able to afford these
strategies, and they are only effective in the long run. The public may get impatient if it doesn't
see rapid results.
In conclusion, Spain suffers from demand-deficient, structural and seasonal unemployment and
their solutions lie in expansionary fiscal and monetary policies and supply-side policies
respectively. Although the solutions might initiate new issues, if Spain does not tackle its
unemployment problem in time, there will be political unrest- as the growing protests in the
article indicate- which will become very problematic for Spain.

2
Burgen, Stephen. "Spain youth unemployment reaches record 56.1%." the Guardian, 2013. Web. 14 Dec 2013.
http://www.theguardian.com/business/2013/aug/30/spain-youth-unemployment-record-high
Word Count: 747

Bibliography
Burgen, Stephen. "Spain youth unemployment reaches record 56.1%." the Guardian, 2013. Web.
14 Dec 2013. http://www.theguardian.com/business/2013/aug/30/spain-youth-
unemployment-record-high
Köhler, Holm-Detlev and José Pablo Calleja Jiménez. Trade Unions in Spain: Organization,
Environment, Challenges. 2013. 17. E-book.

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IB Economics- Macroeconomics Commentary - Free download as PDF File (.pdf), Text File (.txt) or read online for free. The commentary discusses and explains the causes and some solutions to unemployment in Spain using the Huffington Post article "Spain unemployment hits record high on recession fears" Economics was taken as an SL subject by me.

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LONDON, April 26 (Reuters) - Carmakers operating in Britain reported a fall of more than 6 percent in production in the first three months of 2018 as the industry fretted about the future of diesel vehicles and export prospects after Brexit.

Auto manufacturers produced 440,426 cars in the January to March period, down 6.3 percent from a year earlier.

In March alone, the year-on-year pace of decline accelerated to 13.3 percent as bad weather disrupted supply chains.

"A double-digit decline in car manufacturing ... is of considerable concern," Mike Hawes, chief executive of the Society of Motor Manufacturers and Traders, said on Thursday.

Four out of five cars built in Britain are exported. But the quarter's decline was led by a fall in production for the domestic market - which dropped by 14.1 percent - versus a smaller reduction of 4 percent in vehicles made for export.

British consumers' disposable income has been squeezed by a year of high inflation, triggered by the pound's fall after the Brexit vote in June 2016, and some have held off buying diesel cars due to concern about environmental damage and green taxes.

"Following recent announcements on jobs cutbacks in the sector, it's vitally important that the industry and consumers receive greater certainty, both about future policies towards diesel and other low emission technologies, and our post-Brexit trading relationships," Hawes said.

Nissan and Jaguar Land Rover are both cutting jobs, according to industry sources who blamed a lack of domestic demand for diesel cars in particular.

Thursday's figures add to signs that British economic growth is likely to show a slowdown when preliminary first-quarter gross domestic product figures are released on Friday.

A particularly sharp slowdown could further weaken the chances that the Bank of England will go ahead with a once widely expected interest rate rise next month, only the second since the 2008 financial crisis.

However, many economists think that the BoE will wait to see if there is a pick-up in April business surveys before reaching a final decision.

Last month, Prime Minister Theresa May reached an outline agreement with the European Union to preserve existing trade relationships until the end of 2020. But she has said that in the longer term she does not want a customs union with the EU, which car makers fear will disrupt their supply chains. (Reporting by David Milliken Editing by Alison Williams)

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cyclical consumer goods and services (trbc)

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UK car output falls by more than 6 pct in Q1

# data[].attributes.attachment_link.description
LONDON, April 26 (Reuters) - Carmakers operating in Britain reported a fall of more than 6 percent in production in the first three months of 2018 as the industry fretted about the future of diesel vehicles and export prospects after Brexit. Auto manufacturers produced 440,426 cars in the January to March period, down 6.3 percent from a year earlier.

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Learning Objectives

By the end of this section, you will be able to:

Distinguish between legal and economic tax incidence

Know how to represent taxes by shifting the curve and the wedge method

Understand the quantity and price affect from a tax

Describe why both taxes and subsidies cause deadweight loss

Taxes are not the most popular policy, but they are often necessary. We will look at two methods to understand how taxes affect the market: by shifting the curve and using the wedge method. First, we must examine the difference between legal tax incidence and economic tax incidence.

Legal versus Economic Tax Incidence

When the government sets a tax, it must decide whether to levy the tax on the producers or the consumers. This is called legal tax incidence. The most well-known taxes are ones levied on the consumer, such as Government Sales Tax (GST) and Provincial Sales Tax (PST). The government also sets taxes on producers, such as the gas tax, which cuts into their profits. The legal incidence of the tax is actually irrelevant when determining who is impacted by the tax. When the government levies a gas tax, the producers will pass some of these costs on as an increased price. Likewise, a tax on consumers will ultimately decrease quantity demanded and reduce producer surplus. This is because the economic tax incidence, or who actually pays in the new equilibrium for the incidence of the tax, is based on how the market responds to the price change - not on legal incidence.

Tax - Shifting the Curve

In Topic 3, we determined that the supply curve was derived from a firm's Marginal Cost and that shifts in the supply curve were caused by any changes in the market that caused an increase in MC at every quantity level. This is no different for a tax. From the producer's perspective, any tax levied on them is just an increase in the marginal costs per unit. To illustrate the effect of a tax, let's look at the oil market again.

If the government levies a $3 gas tax on producers (a legal tax incidence on producers), the supply curve will shift up by $3. As shown in Figure 4.8a below, a new equilibrium is created at P=$5 and Q=2 million barrels. Note that producers do not receive $5, they now only receive $2, as $3 has to be sent to the government. From the consumer's perspective, this $1 increase in price is no different than a price increase for any other reason, and responds by decreasing the quantity demanded for the higher priced good.

What if the legal incidence of the tax is levied on the consumers? Since the demand curve represents the consumers' willingness to pay, the demand curve will shift down as a result of the tax. If consumers are only willing to pay $4/gallon for 4 million gallons of oil but know they will face a $3/gallon tax at the till, they will only purchase 4 million gallons if the ticket price is $1. This creates a new equilibrium where consumers pay a $2 ticket price, knowing they will have to pay a $3 tax for a total of $5. The producers will receive the $2 paid before taxes.

Note that whether the tax is levied on the consumer or producer, the final result is the same, proving the legal incidence of the tax is irrelevant.

Tax - The Wedge Method

Another method to view taxes is through the wedge method. This method recognizes that who pays the tax is ultimately irrelevant. Instead, the wedge method illustrates that a tax drives a wedge between the price consumers pay and the revenue producers receive, equal to the size of the tax levied.

As illustrated below, to find the new equilibrium, one simply needs to find a $3 wedge between the curves. The first wedge tested is only $0.7, followed by $1.5, until the $3.0 tax is found.

Market Surplus

Like with price and quantity controls, one must compare the market surplus before and after a price change to fully understand the effects of a tax policy on surplus.

Before

The market surplus before the tax has not been shown, as the process should be routine. Ensure you understand how to get the following values:

Consumer Surplus = $4 million

Producer Surplus = $8 million
Market Surplus = $12 million
After

The market surplus after the policy can be calculated in reference to Figure 4.7d

Consumer Surplus (Blue Area) = $1 million

Producer Surplus (Red Area)= $2 million

Government Revenue (Green Area) = $6 million

Market Surplus = $9 million

Why is Government Included in Market Surplus

In our previous examples dealing with market surplus, we did not include any discussion of government revenue, since the government was not engaging in our market. Remember that market surplus is our metric for efficiency. If government was not included in this metric, it would not be very useful. In this case a million-dollar loss to government would be considered efficient if it resulted in a $1 gain to a consumer. To ensure that our metric for efficiency is still useful we must consider government when calculating market surplus.

As with the quota - both consumer and producer surplus decreased because of a reduced quantity. The difference is, since the price is changing, there is redistribution. This time, the redistribution is from consumers and producers to the government. Remember, only a change in quantity causes a deadweight loss. Price changes simply shift surplus around between consumers, producers, and the government.

Let's look closely at the tax's impact on quantity and price to see how these components affect the market.

Transfer - The Impact of Price

Due to the tax's effect on price, areas A and C are transferred from consumer and producer surplus to government revenue.
Consumers to Government - Area A
Consumers originally paid $4/gallon for gas. Now, they are paying $5/gallon. The $1 increase in price is the portion of the tax that consumers have to bear. Despite the fact that the tax is levied on producers, the consumers have to bear a share of the price change. The size of this share depends on relative elasticity - a concept we will explore in the next section. This is because a decrease in price to producers means quantity supplied is falling, and in order to maintain equilibrium, quantity demanded must fall by an equal amount. This price change means the government collects $1 x 2 million gallons or $2 million in tax revenue from the consumers. This is a straight transfer from consumers to government and has no effect on market surplus.

Producers to Government - Area C

Originally, producers received revenue of $4/gallon for gas. Now, they receive $2/gallon. This $2 decrease is the portion of the tax that producers have to bear. This means that the government collects $2 x 2 million gallons or $4 million in tax revenue from the producers. This is a transfer from producers to the government.

As calculated, the government receives a total of $6 million in tax revenue, which is taken from consumers and producers. This has no impact on net market surplus.
Deadweight Loss - The Impact of Quantity
If we just considered a transfer of surplus, there would be no deadweight loss. In this case, though, we know that price changes come with a change in quantity. A higher price for consumers will cause a decrease in the quantity demanded, and a lower price for producers will cause a decrease in quantity supplied. This reduction from equilibrium quantity is what causes a deadweight loss in the market since there are consumers and producers who are no longer able to buy and supply the good.

Consumer Surplus Decrease - Area B

Due to the increase in price, many consumers will switch away from oil to alternative options. This decrease in quantity demand of 1.5 million gallons of oil causes a deadweight loss of $1 million.
Producer Surplus Decrease - Area D
Producers, who now receive only $2.00/gallon for their production, will also decrease quantity supplied by 1.5 million gallons of oil. It is no coincidence that the size of the decrease is the same. When you create the wedge between consumers and producers, you are finding the quantity where the full amount of the tax is incurred but the market is still at equilibrium. Remember that quantity demanded must equal quantity supplied or the market will not be stable. This mirrored decrease in quantity ensures this is still the case. Notice, however, that the impact of this quantity drop causes a larger decrease in producer surplus than consumer surplus totalling $2 million. Again, this is due to elasticity, or the relative responsiveness to the price chance, which will be explored in more detail shortly.

Together, these decreases cause a $3 million deadweight loss (the difference between the market surplus before and market surplus after).

While a tax drives a wedge that increases the price consumers have to pay and decreases the price producers receive, a subsidy does the opposite. A subsidy is a benefit given by the government to groups or individuals, usually in the form of a cash payment or a tax reduction. A subsidy is often given to remove some type of burden, and it is often considered to be in the overall interest of the public. In economic terms, a subsidy drives a wedge, decreasing the price consumers pay and increasing the price producers receive, with the government incurring an expense.

In Topic 3, we looked at a case study of Victoria's competitive housing market where high demand drove up prices. In response, the government has enacted many policies to allow low-income families to still become homeowners. Let's look at the effects of one possible policy. (Note the following policy is unrealistic but allows for easy comprehension of the effect of subsidies).

In the market above, our efficient equilibrium begins at a price of $400,000 per home, with 40,000 homes being purchased. The government wants to substantially increase the number of consumers able to purchase homes, so it issues a $300,000 subsidy for any consumers purchasing a new home. This drives a wedge between what home buyers pay ($250,000) and what home builders receive ($550,000).

With all government policies we have examined so far, we have wanted to determine whether the result of the policy increases or decreases market surplus. With a subsidy, we want to do the same analysis. Unfortunately, because increases in surplus overlap on our diagram, it becomes more complicated. To simplify the analysis, the following diagram separates the changes to producers, consumers, and government onto different graphs.

Producers

The producers now receive $550,000 instead of $400,000, increasing quantity supplied to 60,000 homes. This increases producer surplus by areas A and B.

Consumers

The consumers now pay $250,000 instead of $400,000, increasing quantity demanded to 60,000 homes. This increases consumer surplus by and D. areas C

Government

The government now has to pay $300,000 per home to subsidize the 60,000 consumers buying new homes (this policy would cost the government $18 billion!!) Graphically, this is equal to a decrease in government to areas A, B, C, D and E.

Result

Our total gains from the policy (to producers and consumers) are areas A, B, C and D, whereas total losses (the cost to the government) are areas A, B, C, D, and E. To summarize:

Areas A, B, C and D are transferred from the government to consumers and producers.
Area E is a deadweight loss from the policy.
There are two things to notice about this example. First, the policy was successful at increasing quantity from 40,000 homes to 60,000 homes. Second, it resulted in a deadweight loss because equilibrium quantity was too high. Remember, anytime quantity is changed from the equilibrium quantity, in the absence of externalities, there is a deadweight loss. This is true for when quantity is decreased and when it is increased.

http://www.investopedia.com/terms/s/subsidy.asp

Summary

Taxes and subsidies are more complicated than a price or quantity control as they involve a third economic player: the government. As we saw, who the tax or subsidy is levied on is irrelevant when looking at how the market ends up. Note that the last three sections have painted a fairly grim picture about policy instruments. This is because our model currently does not include the external costs economic players impose to the macro-environment (pollution, disease, etc.) or attribute any meaning to equity. These concepts will be explored in more detail in later topics.

In our examples above, we see that the legal incidence of the tax does not matter, but what does? To determine which party bears more of the burden, we must apply the concept of relative elasticity to our analysis.

Glossary

Economic Tax Incidence

the distribution of tax based on who bears the burden in the new equilibrium, based on elasticity

Legal Tax Incidence

the legal distribution of who pays the tax

Subsidy

a benefit given by the government to groups or individuals, usually in the form of a cash payment or a tax reduction It is often to remove some type of burden, and it is often considered to be in the overall interest of the public

Exercises 4.7

Refer to the supply and demand curves illustrated below for the following THREE questions. Consider the introduction of a $20 per unit tax in this market.

1. Which areas represent the loss to consumer AND producer surplus as a result of this tax?

2. Which areas represent the gain in government revenue as a result of this tax?

3. Which areas represent the deadweight loss associated with this tax?

4. Assume that the marginal cost of producing socks is constant for all sock producers, and is equal to $5 per pair. If government introduces a constant per-unit tax on socks, then which of the following statements is FALSE, given the after-tax equilibrium in the sock market? (Assume a downward-sloping demand curve for socks.)

5. Refer to the supply and demand diagram below.

If an subsidy of $3 per unit is introduced in this market, the price that consumers pay will equal ____ and the price that producers receive net of the subsidy will equal _____.

6. If a subsidy is introduced in a market, then which of the following statement is TRUE? Assume no externalities

Use the diagram below to answer the following TWO questions.

7. If a $6 per unit tax is introduced in this market, then the price that consumers pay will equal ____ and the price that producers receive net of the tax will equal _____.

8. If a $6 per unit tax is introduced in this market, then the new equilibrium quantity will be:

9. Which of the following statements about the deadweight loss of taxation is TRUE? (Assume no externalities.)

10. Which of the following correctly describes the equilibrium effects of a per-unit tax, in a market with NO externalities?

11. Which of the following correctly describes the equilibrium effects of a per unit subsidy?

12. Refer to the supply and demand diagram below.

If an output (excise) tax of $5 per unit is introduced in this market, the price that consumers pay will equal ____ and the price that producers receive net of the tax will equal _____.

13. Consider the supply and demand diagram below.

If a $2 per unit subsidy is introduced, what will be the equilibrium quantity?

Consider the supply and demand diagram below. Assume that: (i) there are no externalities; and (ii) in the absence of government regulation the market supply curve is the one labeled S1.

14. If a $5 per unit tax is introduced in this market, which area represents the deadweight loss?

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By the end of this section, you will be able to: Distinguish between legal and economic tax incidence Know how to represent taxes by shifting the curve and the wedge method Understand the quantity and price affect from a tax Describe why both taxes and subsidies cause deadweight loss Taxes are not the most popular policy, but they are often necessary.

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Calculation of deadweight loss

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Introduction to Dead Weight Loss (Welfare Loss)

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The boom market for beef is fading in Canada after record prices last year, but people will have to wait for costs to tumble in grocery stores.

The cattle industry has experienced a sudden drop in prices, forcing ranchers to adjust their expectations for the year.

"We had an incredible run. We doubled our prices in three years for calves, for example," said Brian Perillat, a senior analyst with CanFax, a cattle market research firm. "In the last few months, we've seen prices drop 15 to 20 per cent from the high."

Even with the market correction, prices are still at historically high levels. Experts say the price spike was too extreme a reaction as beef supplies tightened.

"It's a commodity market. We see big booms and busts with oil and we went through one with cattle," said Perillat.

Price lag in stores

Steaks, roasts and other cuts of beef are still fetching a premium price in the meat department of grocery stores, although that should change. Usually it takes three to six months before changes to cattle prices affect retail prices.

The skyrocketing prices proved to be a double-edged sword for the industry. While profits increased, some grocery store customers reacted to the sticker shock.

If we want to sell more beef, we need to make it easy for the consumer. - Gary Haley, Vantage Foods

At the retail level, the average price for one kilogram of round steak was $19.32 in October and fell to $18.64 by December. Ground beef was $13.23 and dropped to $12.80 over the same period, according to Statistics Canada.

Eating habits

Despite recent financial success, the beef industry faces several challenges as it loses market share in the country, while trying to adapt to a change in eating habits by Canadians.

The hefty prices for beef, and meat in general, have more and more people looking to buy other sources of protein such as eggs, tuna and beans. At the same time, consumers increasingly want food that is healthy, tasty and quick to make.

"The way consumers are eating meat is changing. Centre of the plate usage is declining. Meat as an ingredient is increasing," said Gary Haley with Vantage Foods, a Calgary-based food processor.

Haley spoke Thursday at the Alberta Beef Industry Conference in Red Deer, Alta.

In particular, the younger generation is a puzzle the industry is trying to solve.

"These pesky millennials are a bit of a challenge, because the only meat that really resonates with them in consumer research is chicken," Haley told the crowd of 300 people. "They can't cook, they don't want to cook and we need to figure out how we can supply this young group."

The desire for versatile, low-cost and quickly prepared meals explains why ground beef outsells all other cuts of beef.

Per capita beef consumption dropped in Canada by 12 per cent from 2003 to 2012, according to Statistics Canada.

The price of meat is the biggest deciding factor for people in grocery stores. The recent "phenomenal" spike in beef prices has turned away some consumers.

"We work in a commodity market and it's cyclical. In the last couple of years, prices have been higher, but that will ultimately change and normalize in the future," said Haley in an interview.

Many questions

Other challenges for the beef industry include increased demands for transparency and sustainability. Questions about animal welfare and processing are becoming more prevalent and influencing how some people buy meat.

Traditionally, beef was the top-selling meat in Canada, but that's changed in the last decade, said Haley. Chicken is now the popular choice, Haley suggests, because it is a cheaper source of protein and it's perceived to be healthier than beef.

"If we want to sell more beef, we need to make it easy for the consumer. We need to make it interesting. We need to enhance flavour profiles. We need to demonstrate how to cook it and those types of things."

The sector also needs to keep pace with the trend of smaller packages of meat and more value-added products.

"I don't think we can stay where we are, because the times are a changing," he said.

In Canada, beef production keeps falling, although experts suggest that could change in 2016.

While the industry has seen the number of cattle decrease over the last decade, the size of cattle keeps climbing. In 1975, the average carcass weight was just above 270 kilograms, while in 2014 the weight was over 400 kilograms, according to CanFax.

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Booming beef prices begin to bust | CBC News

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The boom market for beef is fading in Canada after record prices last year, but people will have to wait for costs to tumble in grocery stores. The cattle industry has experienced a sudden drop in prices, forcing ranchers to adjust their expectations for the year. "We had an incredible run.

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Economics Demand and supply analysis.docx

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Demand Analysis in Economics!

Contents:

1. Meaning of Demand

2. Types of Demand

3. Changes in demand

4. Income Demand

5. Cross Demand

6. Demand of Determinants

1. Meaning of Demand

The demand for a commodity is its quantity which consumers are able and willing to buy at various prices during a given period of time. So, for a commodity to have demand, the consumer must possess willingness to buy it, the ability or means to buy it, and it must be related to per unit of time i.e. per day, per week, per month or per year.

According to Prof. Bober, "By demand we mean the various quantities of a given commodity or service which consumers would buy in one market in a given period of time at various prices or at various incomes or at various prices of related goods."

The demand function is an algebraic expression of the relationship between demand for a commodity and its various determinants that affect this quantity.

There are two types of demand functions:

(i) Individual Demand Function. An individual's demand function refers to the quantities of a commodity demanded at various prices, given his income, prices of related goods and tastes. It is expressed as

D=f (P)

(ii)Market Demand Function:

An individual demand function is the basis of demand theory. But it is the market demand function that is main interest to managers. It refers to the total demand for a good or service of all the buyers taken together. The market demand function may be expressed mathematically thus

Dx = f (Px, Py, M, T, A, U)

Where

Dx = Quantity demanded for commodity x

f = functional relation

Px = Price of commodity x

Pr = Prices of related commodities i.e. substitutes and complementariness

M = The money income of the consumer

T = The taste of the consumer

A = 'l he advertisement effect

U = Unknown variables

By demand function, economists mean the entire functional relationship. This means the whole range of price quantity relationship and not just the quantity demanded at a given price per unit of time. The demand function expressed above is really just a listing of variables that affect the demand.

The demand function must be made explicit and clear for use in managerial decision making. The industry must have reasonably good knowledge and information about its demand function to formulate effective long run planning decisions and short run operating decisions.

The basic assumption in demand schedule and demand curve has been the relationship between price and quantity of a commodity signifying a change in price to bring a change in quantity demanded with all other variables assumed constant and unchanged. In demand function this assumption is relaxed and it is held emphatically that besides change in price there are other variables which influence the demand for a particular commodity.

Classical economists were aware of the fact that the price is not the only factor which determines sales but that other factors, too, have an important effect on them. These other factors are the income of the consumer, their tastes, habits, preferences, etc. When these factors influence the demand the demand is said to shift. But their price-demand relationship is not as important to the management as the shift in demand, which constitutes the demand function. Shifting of demand curve renders the demand analysis difficult.

Therefore, demand function makes use of mathematical formulation to arrive at correct results. Recently more sophisticated methods have been developed for the study like simultaneous equation and mathematical programming which helps in arriving at precise results.

2. Types of Demand

Managerial decisions require the knowledge of various types of demand. We explain below a few important types.

Demand for Consumers' Goods and Producers' Goods:

Consumers' goods are those final goods which directly satisfy the wants of consumers. Such goods are bread, milk, pen, clothes, furniture, etc. Producers' goods are those goods which help in the production of other goods that satisfy the wants of the consumers directly or indirectly, such as machines, plants, agricultural and industrial raw material, etc. The demand for consumers' goods is known as direct or autonomous demand. The demand for producers' goods is derived demand because they are demanded not for final consumption but for the production of other goods.

Joel Dean gives the following reasons of the demand for producers' goods:

(1) Buyers are professionals, and hence more expert, price-wise and sensitive to substitutes.

(2) Their motives are purely economic: products are bought, not for themselves alone, but for their profit prospects.

(3) Demand, being derived from consumption demand, fluctuates differently and generally more violently.

The distention between consumers' goods and producers' goods is based on the uses to which these goods are put. There are many goods such as electricity, coal, etc. which are used both as consumers' goods and producers' goods. Still, this distinction is useful for the appropriate demand analysis.

Demand for Perishable and Durable Goods:

Consumers' and producer's goods have been classified further into perishable and durable goods. In economics, perishable goods are the goods which are used up in a single act of consumption while durable goods are the goods which can be used time and again for a considerable period of time.

In other words, perishable goods are consumed automatically while only services of durable goods are consumed. Thus, perishable goods include all types of services, foodstuffs, raw materials, etc. On the other hand, durable goods consist of buildings, machines, furniture's, etc.

This distinction has great importance because in the demand analysis durable goods create more complex problems than nondurable goods. Non-durable goods are often sold to meet the current demand which is based on existing conditions. On the other hand, the sale of durable goods increases the stock of available goods whose services are consumed over a period of time.

The demand for perishable goods is more elastic while the demand for non-durable goods is less elastic in the short-run and their demand tends to be more elastic in the long run. According to J. Dean, the demand for durable goods is more unstable in relation to the business conditions. Postponement, replacement, storage and expansions are inter-related problems which are included in the determination of demand for durable goods.

Derived and Autonomous Demand:

When the demand for a particular product is dependent upon the demand for some other goods, it is called derived demand. In many cases, derived demand of a product is due to its being a component part of the parent product. For example, demand for cement is dependent upon the demand for houses.

The inputs or commodities demanded for further production have derived demand. The demand for raw materials, machines, etc. do not fulfill any direct consumption need of the buyer but they are needed for the production of goods having direct demand. Therefore, they fall in the category of derived demand. If demand for final product increases, the derived demand for related product also increases. If demand for the former falls, the demand for the latter also decreases.

On the other hand, when demand for a particular product is independent of the demand for other products, such a demand is called autonomous demand. The demand for consumer goods is autonomous. It is the one where a commodity is demanded because it is needed for direct consumption. For example, T.V., furniture, etc.

To distinguish between derived demand and autonomous demand is not an easy job. There is a thin line of demarcation between the two. In fact, mostly demand is derived demand. For example, even the demand for a car by a household is derived from the demand for transport service. Thus, the distinction between the two is rather arbitrary and a matter of degree.

Derived demand is generally less price elastic that the autonomous demand. In the case of derived demand, the impact of price on demand gets diluted by other components in production whose prices are sticky.

Industry and Company Demand:

Industry demand refers to the total demand for the products of a particular industry, that is, the total demand for paper in the country On the other hand, company demand denotes the demand for the products of a particular company (firm), that is, the demand for paper produced by Bellarpur Paper Mills. Industry demand covers the demand of all firms producing similar products which are close substitutes to each other irrespective of differences in trade names, such as Close-up, Colgate, Pepsodent, etc.

Industry demand is less price elastic than company demand.

However, the structure of the market decides the degree of price-demand relationship of the company demand:

(i) In the case of perfect competition the degree of substitutability being perfect, the company demand for the product tends to be perfectly elastic.

(ii) In monopoly market, there is only one firm and the firm is itself an industry. In such a case, the company demand curve is the same as that of the industry demand curve.

(iii) In homogeneous oligopoly, business is highly transferable among rivals. The company demand curve remains uncertain because it depends upon what its rivals do. Usually, the sellers charge the same price to stay in the market.

(vi) In differentiated oligopoly, the company demand is less closely related to the industry demand. Sellers try to differentiate their products from each other. Hence, the price competition is lower than the homogeneous oligopoly market.

(v) If there is monopolistic competition, the company demand curve is more price elastic than the industry demand curve.

Short-run Demand and Long-run Demand:

In the case of perishable commodities such as vegetables, fruit, milk, etc., the change in quantity demanded to a change in price occurs quickly. For such commodities, there is a single demand curve with the usual negative slope. But in the case of durable commodities such as equipment's, machines, clothes, and others, a change in price will not have its ultimate effect on the quantity demanded until the existing stock of the commodity is adjusted which may take a long time.

A short-run demand curve shows the change in quantity demanded to a change in price, given the existing stock of the durable commodity and the supplies of its substitutes. On the other hand, the long-run demand curve shows the change in quantity demanded to a change in price after all adjustments have been made in the long-run.

According to Joel Dean, "Short-run demand refers to existing demand with its immediate reaction to price changes, income fluctuation, etc., whereas long-run demand is that which will ultimately exist as a result of the changes in pricing, promotion or product improvement, after enough time is allowed to let the market adjust itself to the new situation."

Joint Demand and Composite Demand:

When two or more goods are jointly demanded at the same time to satisfy a single want it is called joint or complementary demand. Joint demand refers to the relationship between two or more commodities or services when they are demanded together. There is joint demand for cars and petrol, pens and ink, tea and sugar, etc.

Jointly demanded goods are complementary. A rise in the price of one leads to a fall in the demand for the other and vice-versa. For example, a rise in the price of care will bring a fall in their demand together with the demand for petrol and lower its price, if the supply of petrol remains unchanged.

On the contrary, a fall in the price of cars, as a result of a fall in the cost of production of cars, will increase their demand, and therefore increase the demand for petrol and raise its price, if available supplies of petrol are unchanged. A commodity is said to have composite demand when it can be put to several alternative uses.

This is not only peculiar to commodities like leather, steel, coal, paper, etc. but also to factors of production like land, labour and capital. For example, coal is demanded by railways, by factories, by households, etc. There is competition among the different uses of a commodity in composite demand. Hence, each use of the commodity is the rival of the other uses. So it is also called rival demand. Any change in the demand for a commodity by a user will affect the supply of the other users which will change their prices.

3. Changes in Demand

Changes in demand take place in two ways:

(1) Increase and decrease in demand; and

(2) Extension and contraction in demand.

(1) Increase and Decrease in Demand:

An individual's demand curve is drawn on the assumption that factors such as prices of other commodities, income and tastes influencing his demand remain constant. What happens to an individual's demand curve if there is a change in any one of the factors affecting his demand, the other factors remaining constant?

When any one of the factors changes, the entire demand curve shifts either to the right or to the left when the consumer buys more of the commodity at the same price, it is increase in demand. When his money income rises, other factors remaining constant, his demand curve for a commodity will shift to the right.

This is shown in Figure 4. Before the rise in his income, the consumer is buying OQ quantity at OP price on the DD demand curve. With the increase in income, his demand curve shifts to the right as D]D]. He now buys more quantity OQ ₁ at the same price OP. On the contrary, if his income falls, his demand curve will shift to the left.

He will buy less of the commodity at the same price, as shown in Figure.5. Before the fall in his income, the consumer is on the demand curve D ₁D ₁ where he is buying OQ ₂ of the commodity at OP price. He now buys less quantity OQ, at the given price OP. When the consumer buys less of the commodity at a given price, this is called the decrease in demand.

Demand curves are thus not stationary. Rather, they shift to the right or left due to a number of causes. There are changes in tastes, habits and customers of the consumers; changes in income and expenditure; changes in the prices of substitutes and complements; expectations about future in prices and incomes and changes in the age and composition of the population, etc.

(2) Extension and Contraction in Demand:

A movement along a demand curve takes place when there is a change in the quantity demanded due to a change in the commodity's own price and not due to any other factor. This is illustrated in Figure 6. Which shows that when the price is OP 1, the quantity demanded is OQ ₁. With the fall in price, there has been a downward movement along the same demand curve D ₁D l from point A to B.

This is known as extension in demand. On the contrary, if we take В as the original price-demand point, then a rise in the price from OP ₂ to OP ₁ leads to a fall in the quantity demanded from OQ ₂ to OQ ₁ The consumer moves upwards along the same demand curve D ₁D ₁ from point В to A. This is known as contraction in demand.

4. Income Demand

We have so far studied price demand in its various aspects, keeping other things constant. Let us now study income demand which indicates the relationship between income and the quantity of commodity demanded. It relates to the various quantities of a commodity or service that will be bought by the consumer at various levels of income in a given period of time, other things being equal.

Things that are assumed to remain equal are the price of the commodity in question, the prices of related commodities, and the tastes, preferences and habits of the consumer for it. The income-demand function for a commodity is written as D = f(y). The income-demand relationship is usually direct.

The demand for the commodity increases with the rise in income and decreases with the fall in income, as shown in Figure 9. When income is OI, the quantity demanded is OQ and when income rises to OI, the quantity demanded also increases to OQ1.The reverse case can also be shown likewise. Thus, the income demand curve ID has a positive slope. But this slope is in the case of normal goods.

Let us take the case of a consumer who is in the habit of consuming an inferior good. So long as his income remains below a particular level of his minimum subsistence, he will continue to buy more of this inferior good even when his income increases by small increments. But when his income starts rising above that level, he reduces his demand for the inferior good. In Figure 9(B), OI is the minimum subsistence level of income where he buys IQ of the commodity.

Upto this level, this commodity is a normal good for him so that he increases its consumption when his income rises gradually from ОI ₁ to OI ₂As his income rises above OI, he starts buying less of the commodity. For instance, at OI 3 income level, he buys I ₃O ₃ which is less than IQ. Thus, in the case of inferior foods, the income demand curve ID is backward sloping.

5. Cross Demand

Let us now take the case of related goods and how the change in the price of one affects the demand of the other. This is known as cross demand and is written as D =f (pr). Related goods are of two types, substitutes and complementary. In the case of substitute or competitive goods, a rise in the price of one good A raises the demand for the other good B, the price of В remaining the same. The opposite holds in the case of a fall in the price of A when the demand for В falls.

Figure 10 (A) illustrates it. When the price of good A increases from OA to О A, the quantity of good В also increases from OB to OB ₁ The cross demand curve CD for substitutes is positively sloping. For with the rise in the price of A, the consumers will shift their demand to В since the price of В remains unchanged. It is also assumed here that the incomes, tastes, preferences, etc. of the consumers do not change.

In case the two goods are complementary or jointly demanded, a rise in the price of one good A will bring a fall in the demand for good B. Conversely, a fall in the price of A will raise the demand for В. This is illustrated in Figure 10 (B) where when the price of Л falls from OA ₁to OA ₂ the demand for В increases from OB ₁ to OB ₁ The demand curve in the case of complementary goods is negatively sloping like the ordinary demand curve.

If, however, the two goods are independent, a change in the price of A will have no effect on the demand for B. We seldom study the relation between two unrelated goods like wheat and chairs. Mostly as consumers, we are concerned with the price-demand relation of substitutes and complementary goods.

6. Demand of Determinants

The demand for the product is mainly the attitude of consumers towards the product. The attitude of consumers gives vise to actions in buying different products at different prices. The demand for a product is determined by different factors. The main demand determinants are price, income, price of related goods and advertising. Therefore, demand is a multivariate relationship, i.e. it is determined by many factors simultaneously.

(A) Determinants of Individual Demand:

Let us discuss the variables which influence the individual demand.

1. Price of the Commodity:

This is the basic factor influencing the demand. There is a close relationship between the quantity demanded and the price of the product. Normally a larger quantity is demanded at a lower price that at a higher price. There is inverse relationship between the price and quantity demanded. This is called the law of demand.

2. Income of the Consumer:

The income of the consumer is another important variable which influences demand. The ability to buy a commodity depends upon the income of the consumer. When the income of the consumers increases, they buy more and when income falls they buy less. A rich consumer demands more and more goods because his purchasing power is high.

3. Tastes and Preferences:

The demand for a product depends upon tastes and preferences of the consumers. If the consumers develop taste for a commodity they buy whatever may be the price. A favourable change in consumer preference will cause the demand to increase. Likewise an un-favourable change in consumer preferences will cause the demand to decrease.

4. Prices of Related Goods:

The related goods are generally substitutes and complementary goods. The demand for a product is also influenced by the prices of substitutes and complements. When a want can be satisfied by alternative similar goods they are called substitutes, such as coffee and tea. Whenever the price of one good and the demand for another are inversely related then the goods are said to be complementary, such as car and petrol.

5. Advertisement and Sales Propaganda:

In modem times, the preferences of consumers can be altered by advertisement and sales propaganda. Advertisement helps in increasing demand by informing the potential consumers about the availability of the product, by showing the superiority of the product, and by influencing consumer choice against the rival products. The demand for products like detergents and cosmetics is mainly caused by advertisement.

6. Consumer's Expectation:

A consumer s expectation about the future changes in price and income may also affect his demand. If a consumer expects a rise in prices he may buy large quantities of that particular commodity. Similarly, if he expects its prices to fall in future, he will tend to buy less at present. Similarly, expectation of rising income may induce him to increase his current consumption.

(B) Determinants of Market Demand:

Market demand for a product refers to the total demand of all the buyers taken together. How much quantity the consumers in general would buy at a given period of time constitutes the total market demand for the product.

The following factors affect the market demand pattern of a commodity:

1. Price of the Product:

The law of demand states that if other things remain the same when price falls, demand increases and vice-versa.

2. Standard of Living and Spending Habits:

When people are accustomed to high standard of living their spending on comforts and luxuries also increase, that automatically increase the demand.

3. Distribution of Income Pattern:

If the distribution pattern of income is fair and equal the market demand for essential items tends to be greater.

4. The Scale of Preferences:

The market demand for a product is also affected by the scale of preference of buyers. If there is a shift in consumers' preference from x to y, the demand for у tends to increase.

5. The Growth of Population:

The growth of population is also another important factor that affects the market demand. With the increase in population, people naturally demand more goods for their survival.

6. Social Customs and Ceremonies:

Social customs and ceremonies are usually celebrated collectively. They involve extra expenditure on certain items and thereby increase the demand.

7. Future Expectation:

People are not sure about their future, because future is uncertain. If the consumers expect a rise in prices of products, they buy more at present and preserve the same for the future, thereby the market demand would be affected.

8. Tax Rate:

The tax rate also affects the demand. High tax rate would generally mean a low demand for the goods. At certain times the government restricts the consumption of a commodity and uses the tax as a weapon. A highly taxed commodity will have a lower demand.

9. Inventions and Innovations:

Inventions and innovations introduce new goods in the market. The consumers will have a strong tendency to purchase the new product. The preference over the new goods adversely affects the demand for the existing goods in the market.

10. Weather Conditions:

Seasonal factors also affect the demand. The demand for certain items purely depends on climatic and weather conditions. For example, the growing demand for cold drinks during the summer season and the demand for sweaters during the winter season.

11. Availability of Credit:

The purchasing power is influenced by the availability of credit. If there is availability of cheap credit, the consumers try to spend more on consumer durables thereby the demand for certain products increase.

12. Pattern of Saving:

Demand is also influenced by the pattern of saving. If people begin to save more, their demand will decrease. It means the disposable income will be less to purchase the goods and services. On the contrary, if saving is less their demand will increase.

13. Demonstration Effect:

Demonstration effect helps to increase human wants. In underdeveloped countries, there is a desire in the minds of the people to imitate other people for conspicuous consumption and that is why they are not able to save. This change in the saving habits of the people is due to "contact effect". The demonstration effect has a positive effect on the demand for comforts and luxury goods.

14. Circulation of Money:

An expansion or a contraction in the quantity of money will affect demand. When more money circulates among the people, more of a thing is demanded by the people because they have more purchasing power, and vice versa.

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Demand Analysis in Economics | Managerial Economics

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ADVERTISEMENTS: Demand Analysis in Economics! Contents: 1. Meaning of Demand ADVERTISEMENTS: 2. Types of Demand 3. Changes in demand 4. Income Demand 5. Cross Demand ADVERTISEMENTS: 6. Demand of Determinants 1. Meaning of Demand The demand for a commodity is its quantity which consumers are able and willing to buy at various prices during a ...

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