• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Microeconomics Coursework - Minimum wage

Extracts from this document...

Introduction

Microeconomics Coursework - Krithika Narayan Negative externalities are the undesirable effects of the consumption or production of a good on 'outsiders' (individuals or firms) that are not accounted for in the private market (market for private firms and individuals) and are therefore called 'spillover' effects. For example in the case of tobacco, the negative externalities are health and are risks to the users and the people around them, pollution of the surrounding areas, addiction etc. It is a type of market failure. Market failure is when a market works badly or is absent completely. In this case, the market is overproducing tobacco therefore it is a market failure. This indicates that the social benefit is less than private benefit i.e. benefit to individuals. This can be shown in the market diagram for tobacco. ...read more.

Middle

One solution to reduce the consumption of tobacco is to increase the tax on tobacco as a whole instead of on cigarettes or tobacco pouches. The supply will therefore shift to the left. This is shown in the diagram below. Market for tobacco S2 D S1 P1 P2 P3 Q2 Q1 Quantity of tobacco (thousands of tones) Because the tax is an ad-valorem tax, supply will be steeper because as the price increases, the tax also increases. The vertical difference between the curves at any point will be the tax at that price on the original supply curve (S1). At the original price P3, the tax charged is P1-P3. Consumers pay only �P1-P2 (striped region) and the remaining tax (�P2-P3-checked region) is paid by the firm. This causes the price to rise, which causes a movement along the demand curve. ...read more.

Conclusion

This theory of negative externalities is directly relevant to the issue of tobacco consumption. However, there are certain drawbacks. The market diagrams for these will be extremely hard to construct. Data will need to be collected from a great number of people for the demand curve to be accurately drawn. Also, this theory assumes all other factors that affect demand and supply to be constant. The negative externality, in many cases, is not possible to quantify. Therefore it is not possible to accurately calculate by how much the demand would need to be decreased by. It is, however, useful to have this theory applied because it does tell us that demand needs to be decreased, though extremely roughly. Therefore, it is crucial to look at the matter from an economic perspective to gain insight as to how to move forward to solve these issues. 1 A demerit good is one that is overvalued by the consumer and is supplied at a price that is relatively low. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. Minimum wage

    stay the same, this is mainly due to the fact that the cinema doesn't have many substitutes. Although rental DVD's could account for the cinema they aren't the same. Therefore because the cinemas has a PED of -2.3 it his highly inelastic, thus consumers will continue visiting the cinema because there isn't anything good enough to act as its substitute.

  2. Billions of Americans are making minimum wage but is that really enough for a ...

    That could ultimately pump as much as $9 billion into the economy, she said. "At a time like this, there is nothing else putting upward pressure on wages." There is much to debate in regards with minimum wage and many sides to be told.

  1. Practice coursework

    The government would get more money from this, so it would improve as much. The oil companies would want to drill and search for oil in more remote areas, causing more deforestation, and much more money spending by the companies and time.

  2. Economics Coursework - Demand&Supply

    the industry and traditionally accounts for nearly a fifth of annual sales. If things do not improve, the SMMT is forecasting that only 1.72m new vehicles will be sold in 2009, compared with 2.13m in 2008. However, there was one bright note with the rise of the small car segment,

  1. Imperial Tobacco predicts 3% revenue rise

    "It is saying full-year revenues are up in spite of a fall in cigarette volumes." Dynamic pricing has been a saving grace for other big tobacco groups, including BAT and Imperial, following a tough year of trading in 2009 that showed cigarettes were not recession-proof.

  2. Economics Higher Level Coursework

    This hurts the GDP of major rubber producing countries which rely on rubber exporting, and also employment of rubber farmers. Rubber world market 1995- 2001 (US�) Prubber S1995 S2001 155� TR when S� Original TR 25� D2001, YEd < 1 D1995 q1995 q2001 Qrubber (kg)

  1. Economics Higher Level Coursework

    With the average cost of the firm decreasing along the increasing returns of scale region of the long run cost curve, the short run average cost together with the marginal cost curve shifts right. As a result, the output Q1 increases to Q2, while prices P1 decreases to P2.

  2. Economics Higher Level Coursework

    seen to be higher than that of rural areas. In a free market, less investment will be available to the rural areas. Together with push factors, e.g. lack of entertainment in the countryside, rural workers with higher expertise will migrate to cities to earn money.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work