A negative externality is a cost imposed on a third party from producing or consuming a good. This is a diagram for negative production externality. This shows the divergence between the private marginal cost of production and the social marginal cost of production. A negative externality leads to overconsumption and deadweight welfare loss. Diagram for …
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The Circular flow of income diagram models what happens in a very basic economy. In the very basic model, we have two principal components of the economy: Firms. Companies who pay wages to workers and produce output. Households. Individuals who consume goods and receive wages from firms. This circular flow of income also shows …
Placing a tax on a good, shifts the supply curve to the left. It leads to a fall in demand and higher price. However, the impact of a tax depends on the elasticity of demand. If demand is inelastic, a higher tax will cause only a small fall in demand. Most of the tax will …
Q. Evaluate the economic case for and against the UK government further increasing the tax on tobacco in order to reduce smoking. Increasing tax will lead to a fall in demand, although this may only be a small effect because demand is price inelastic. People are addicted and there are no close substitutes. Cigarettes are …
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