Question
Please write a critical analysis. The theory/diagram is the typical d and s + tax, shifting the s curve to the left and thereby reducing s and d and raising price. The interesting unknown/evaluation is the extent to which reduction in d occurs and the extent of the increase in price.
Sample paper
EFFECTS OF TAXES ON DEMAND AND SUPPLY OF VIDEO GAMES
Fiscal policies used by governments play a critical role in reducing and discouraging use of certain products and services. Consumers are forced to stop using particular services and products since the government believes that they can be harmful. For instance, the use of tobacco is controlled by imposing heavy taxes on its products, as well as, production process. The companies are forced to transfer the costs and taxes to consumers making the product expensive and unattractive to purchase or use (Conway, 2015, p5). Similarly, the addition to video games, which is blamed for increase violence and child delinquency can be reduced by increasing taxes on the products. The companies can absorb part of the taxes but will be forced to transfer the cost to consumers. It is clear that video games are harmful especially to children who become addicted. Many children have dropped out of school, become rude, and disrespectful to the elders. Discouraging the behaviours can be realized by imposing heavy charges on its products and licensing, which will increase the costs. It should be noted that many children do not support themselves financially as they rely on their parents. Parents will prioritize where to spend their income on items that will enhance their children than destroying their future (Baye, 2012, p3). In other words, the use of taxes plays a critical role in changing the behaviour of consumers in society. Also, the increase in taxes on the products affects the demand and supply curves of the products when the government introduces high taxes.
According to Scott (2012), government taxes on products and services affects the prices of the commodity; thus, changing consumer perception about the products. The pricing of products affects consumer attractiveness unless is addictive and essential products that they must use. The increase in prices affects the profitability of the products as it will attract fewer customers. Many businesses will be forced to supply the products and services; hence, the reduction of supplies. The supply curve will shift since producers and suppliers will not be willing to incur losses. Additionally, the businesses will not want to pay more to produce the products since it will reduce profitability owing to increase in production costs (Deaton, 2011, p10). The higher costs of producing the products can stifle innovativeness as it increases prices of new products. It should be noted that price serves as vertical axis in the demand/supply curve; therefore, its increase caused by the high tax will shift the supply curve inwardly. In essence, the reduction in production and supply of the video products will reflect the fact that businesses are forced to produce fewer products at the same price.
The ripple effects of reduced production are the increases in demand, which translates to higher prices; however, the consumer will stop using the products, in the long run, owing to high product costs. The effects of taxes on price equilibrium is an essential concept that government takes into account when deciding to impose a tax (Conway, 2015 p16). The taxes affect the supply curves as it causes it to shift inwardly and its secondary effects are the price equilibrium. By definition, price equilibrium is the price that producer supply equals demand of consumers at the stable price. As noted, tax plays a role in increasing the prices of products in the market as producers can’t absorb all the costs. The increase in price result in the equilibrium prices to fall as a result in Imposed taxes. Consequently, the business will be forced to stop producing the products as it becomes difficult to increase their profits. The reason many businesses are established is making a profit (Deaton, 2011, p5). On the other hand, consumers will be forced to abandon the products and purchase less expensive products.
As stated, the increase in taxes affects the equilibrium prices of the video games; thus, changing consumer perception of the products. There is an indirect effect of taxes on demand of products and services. In addition, the taxes of products and services affects consumer purchasing power as equilibrium prices change (Baye, 2012, p43). Higher taxes will discourage consumers from purchasing the products and services. They will be forced to spend on products that they believe in essential than on luxury products and services. The change in consumer purchasing power causes consumers to spend less on products that are secondary. In other words, high taxes reduce the demand for the products; notably, the business can absorb the taxes to maintain a stable price of the products to mitigate the change in consumer behaviour. It should be noted that not many businesses will accept to stay operational and they don’t make profits, which makes them close business.
The extent that taxes affects the demand and supply of products depend on how businesses incorporate taxes on its pricing structure. The form that businesses takes to decide on the price of its products plays a role in changing the consumer perception of the products (Conway, 2015, p48). High pricing with no change in the quality of the products will cause consumers to repudiate the products. As government introduces taxes on the products, many businesses will be forced to stop operating as they get fewer profits on the products and services they deliver. Others will decide to pass the tax burden to consumers by raising the prices of their product. These decisions affect the demand and supply of their products in the market, which is most cases negatively. The government uses the concept when deciding on whether to taxes the products. On the other hand, the business examines their work flexibility when pricing their products and services; hence, causing the changes in tax rates (Scott, 2012, p26). The conceptual cause pathway caused by the increases taxes on video games causes consumers to stop using the product and services; thereby, reducing the harmful effects such as child delinquency. The government understands the essence of taxation in changing consumer behaviour. However, the policy cannot be effective since some addicted consumers can decide to continue purchasing the products.
The policy can only be effective where children who are the main consumers are poor or rely on their parents. However, when parents are rich and encourage their children to engage in the video games, it will be difficult to shape their behaviours (Deaton, 2011, p25). Similarly, since the product can be addictive, many children will force their parents to purchase the products to appease them. In essence, this means the relationship between parent and their children influences the effectiveness of tax in changing consumer behaviour. In addition, there are varied types of video games and console services, which cannot be taxed equally. Therefore, consumers tend to use the substitute products and services that have not been targeted with high tax. The consumers of the products can also be influenced by reasons such as convenience, availability, and suitability of the products; thus, it is unclear the effects on tax can produce video games. The consumers can be forced to embrace online video game products, which are difficult to manage; notably, they can exploit the system and use online services as an alternative.
The best approach that government should embrace is banning and making it illegal for businesses to allow children to play video games. On the other hand, parents need to be educated and awareness created on the effects on video games in personal development. It should be noted that making it illegal affects the producer and consumer. the quantity of product and service will be less when consumers understand that it is illegal. The punishment affects consumer and producer of the products; thus, reduce availability. Baye (2012) says, “If the only the buyer is penalized, the equilibrium price will be lower; the risk of punishment is regarded by buyers as a cost and reduces the price they will pay to the seller. If the seller is penalized, the equilibrium price will be higher as the cost of punishment is factored into the seller’s cost.” In essence, john says that the prices of video game products will remain unchanged when the cost and risks of punishment are shared equally.
In sum, the barriers to the implementation of a tax on video games have economic effects to groups such as affected industry, local government, and a population of consumers. Raising the tax can increase the government revenue, these taxes can be resisted by the interested groups of consumers and industry group. What is essential in public support for the policy; thus, the government needs to increase awareness of the essence of the policy before implementation. Lobbying for support from parents and interested groups is critical to prevent consumer resistance. The government needs to create awareness on the essence and use of the additional taxes collected from consumers of video games. It should be noted that government should avoid creating a feeling that they are exploiting people. The high taxes on video games will create a disproportionate economic effect to consumers with less income. In essence, it means that the video games will be regressive.
Bibliography
Baye, M., 2012. Consumer Behavior, Cost of Living Measures, and the Income Tax. London: Springer Science & Business Media.
Conway, S., 2015. Video Game Policy: Production, Distribution, and Consumption. New York: Routledge.
Deaton, A., 2011. Economics and Consumer Behavior. Cambridge : Cambridge University Press.
Scott, J., 2012. Tax Help for Gamblers: 2nd Edition. London: Huntington Press Inc.
Susan G. Komen Breast Cancer Foundation Financial research paper
