EconomicsWithAneesh

Explain the likely effects of imposing indirect taxes on alcohol [10 marks] Alcohol is a demerit good, a good that has a greater private benefit than social benefit which leads to a loss of welfare in society. Indirect taxes come in two types: ad valorem, which is a price imposed for each transaction(such as VAT) and specific taxes that aim to make consumption less viable.  Through the use of Figure 1, I have shown the effect of imposing a specific tax (tax per unit) onto alcohol the tax has caused the price of alcohol to move from P1 to P star and hence reduce the quantity demanded of alcohol. This increase in price will affect consumers and producers. There will be a reduction in the number of consumers that possess effective demand for alcohol which may cause them to stop drinking alcohol or move to the substitutes. This depends on how inelastic consumer demand is as if demand is highly inelastic consumers may still pay the higher price for their example exacerbating the problem...

To what extent do you agree that a fall in savings is beneficial to the economy [25 marks] Savings are calculated by assumption from income. The formula savings = income - consumption is used to calculate what proportion of income is saved. A fall in savings, therefore, shows a greater proportion of income being spent on consumption. In my opinion, I believe a fall in savings is quite beneficial to an economy in the short run. However, when it comes to the long run, falling savings can have detrimental impacts. Savings are seen as a withdrawal from the circular flow of income;  a leakage of spending power out of the circular flow . Therefore, by reducing the amount of savings, we are injecting more into the economy, whether that be through investments, exports, or increased government spending. In the short run, increased consumption can lead to an increased output as households spend more on goods and services. Consumption is a key component of aggregate demand: AD = C + I + G + ...

Evaluate the view that economic growth leads to an improvement in living standards [25 marks] Economic growth refers to the increase in the value of production of good and services in an economy over a period of time.  Although an increase in economic growth does improve aspects of living standards (unemployment and income), other aspects may be deteriorating, for instance, the quality of life of population.   Improved living standards, ceteris paribus, may be done to greater economic growth. Real GDP measures economic growth and therefore, when GDP per capita increases, we can see trends introducing unemployment. For example, when economic activity is high, more production happens overall and therefore labour, as it is an example of derived demand, will be demanded more . This would therefore decrease unemployment, as more jobs will be created. Moreover, economic growth tends to increase greater government tax revenue. Government are able to spend more on public services...