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Showing posts with label tax. Show all posts
Showing posts with label tax. Show all posts

2/2/12

The money multiplier and the introduction of taxes

20:30
The money multiplier and the introduction of taxes
This article goes over the economics of the money multiplier, and goes over an example:

Imagine an economy that has no imports or taxes. An increase in autonomous expenditure of 2 billion increases equilibrium expenditure by 8 billion.

a) calculate the multiplier
b) calculate the marginal propensity to consume
c) what would happen to the multiplier if an income tax is introduced

An increase in autonomous expenditure means that there is an increase in the minimum amount of spending done (for example, sustenance only consumption which is necessary regardless of income).  This point is represented on the Keynesian Cross graph (the 45 degree line) by its positive intersection on the Y axis.

1/21/12

Legalize marijuana? The case for legalized marijuana with taxes

08:01
Legalize marijuana?  The case for legalized marijuana with taxes

The following information is found on many places on the web, and some have asked questions about the economics occuring in the passage. At the end of this post, I will go over some economic questions, and show the related graphs to detail their relationship with the ideas stated in this article:

"Should Governments Legalize and Tax Marijuana?

The war on drugs is an expensive battle, as a great deal of resources go into catching those who buy or sell illegal drugs on the black market, prosecuting them in court, and housing them in jail. These costs seem particularly exorbitant when dealing with the drug marijuana, as it is widely used, and is likely no more harmful than currently legal drugs such as tobacco and alcohol. There's another cost to the war on drugs, however, which is the revenue lost by governments who cannot collect taxes on illegal drugs. In a recent study for the Fraser Institute, Economist Stephen T. Easton attempted to calculate how much tax revenue the Canadian government could gain by legalizing marijuana.


9/24/11

Tax increase in the aggregate supply and demand model

16:20
Tax increase in the aggregate supply and demand model

This post considers the effects of a tax increase, given the aggregate supply and demand model.

George W. Bush passed two tax cuts, the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003. Allowing all the tax cuts to expire would raise taxes by $200 billion according to estimation of Tax Foundation.

a. U.S. marginal propensity to consume is assumed to be 2/3. What is likely to happen to the followings: do they rise or fall, and by how much if Bush Tax cuts expire? (Assuming all else equal.)
i. Private Saving
ii. Public Saving
iii. National Saving
iv. Investment

7/19/11

Why sin taxes fail as a revenue generating device

10:00
Why sin taxes fail as a revenue generating device
Geierunited
Today's post will be a random rambling about government's making stupid funny deicisions.  It has been popular recently to increase taxes on cigarettes because of their negative effect on health, and the externality of second hand smoke.  What governments fail to realize is that the law of demand is a LAW, and when they increase the price of these goods less people will buy them.

So what has happened recently in New Mexico is that government programs were created

7/5/11

The dark side of globalization: why domestic firms ask for government protection in the form of tariffs.

12:52
The dark side of globalization: why domestic firms ask for government protection in the form of tariffs.
While most economists agree that globalization is good in the aggregate (meaning on the whole, or considering everyone), there are always going to individuals that lose from free trade and globalization (also called liberalization).    In this post we will go through an example of why domestic firms producing t shirts are angry with the fact that they must compete with foreign firms, so ask for government assistance in the form of tariffs.  A real world example of this battle is shown here looking at the economics of US and Canada's softwood timber market.


First let’s consider a domestic firm that produces t-shirts. 

6/17/11

US and Canada’s trade agreements, and the effect of NAFTA on softwood timber

10:57
US and Canada’s trade agreements, and the effect of NAFTA on softwood timber

The US and Canada have had many disagreements over the softwood timber trade.  These disagreements are caused by Canada’s policy of taxing the production/harvesting of softwood timber in Canada.  These stumpage fees (named after the stump left behind after harvest) were started because much of the harvesting of timber in Canada is done on public land.  Because these fees are so low, US produces view the fees as a form of a subsidy.  Because of the subsidy, American firms are unable to match Canadian producer’s low prices.  

This became an issue of international concern because the United States has an anti-dumping policy.  The US argues that “dumping” occurs when

5/28/11

What does elasticity mean to economists?

19:46
What does elasticity mean to economists?
Elasticity is probably one of the most confusing subjects in an introductory microeconomics course.  I personally think their are two reasons for this.  The first is that students are introduced to applied math, for probably one of the first times in their life, and that the math is an algebraic version of calculus (which means it makes a whole lot more intuitive sense in calculus than it does in algebraic form).  The second is that most teachers focus on the math and solving, rather than the meaning and intuition.

I always begin lectures on elasticities by relating the idea to that of a rubber band.   If the rubber band is inelastic (not very stretchy),  then it does not react (stretch) very much when you exert effort to stretch it.  This idea is very similar to what happens when looking at elasticities in economics.  If you have an inelastic price elasticity of demand, then if you change price (similar to your effort), then the quantity demanded does not change very much (how much the rubber band stretches). 

Lets now compare this example to the math we always see in the textbooks.


The above relationships should give you a general idea of how elasticities work, and how they are calculated, but why are they important?

Understanding the price elasticity of demand is very important for a business because it can tell them how much they can raise their prices before they start to lose too many sales.  For example, say that the price elasticity of demand is inelastic, then they can raise the price a lot, and people will still buy similar amounts of the good!  Think about medicine, or cigarettes.  When the price of these things go up, people still want or need them so they are willing to pay the higher prices.

This also holds true for the government when decided what types of goods to tax.  Taxing cigarettes and alcohol is very popular because the price increases do not change the quantity demanded to a large extent.  Gasoline is also typically has an inelastic price elasticity of demand.

So what types of goods have elastic price elasticity of demands?  Goods with a lot of substitutes, or things that we do not really need.  Imagine if the price of a coffee at Starbucks went up to $10 for a venti.  You would probably go to another coffee shop or brew your own at home.  Likewise, if the price of blue pens went up, you would probably buy black pens instead.  Because we react to the price increase by buying less of the good, we would consider our price elasticity of demand elastic (the rubber band reacts a lot to a little effort).