ECON1002 Assignment: Attempt All Questions And Type Your Ans

ECON1002 Assignment Attempt All Questions Type Your Answers

Consider the following policies, each of which is aimed at reducing violent crime by reducing the use of guns. Illustrate the effect of each of these proposed policies in a demand and supply diagram of the gun market. For each question, show the price paid by consumers, the price received by producers, and the quantity of guns sold. What is the difference between the price paid by consumers and the price received by producers? Has the number of guns sold increased or decreased?

a. A tax on gun buyers

b. A tax on gun sellers

c. A binding price floor on guns

d. A tax on gun ammunition

Paper For Above instruction

The impact of policies aimed at reducing gun violence can be effectively analyzed through demand and supply diagrams of the gun market. Each policy shifts either the demand curve, the supply curve, or imposes price controls, influencing the equilibrium price and quantity of guns sold, as well as the distribution of costs between consumers and producers.

a. Tax on gun buyers

Imposing a tax on gun buyers increases the effective price paid by consumers. In the demand and supply diagram, the demand curve shifts downward (or leftward if considering total revenue impacts), reflecting a decrease in demand at each price level due to the higher purchase price. The new equilibrium occurs at a lower quantity of guns sold, with the price paid by consumers rising by the amount of the tax plus any part of the tax passed on to consumers. The price received by producers decreases, as they receive the price paid by consumers minus the tax burden. The difference between the price paid by consumers and the price received by producers equals the tax amount, which is typically split between consumers and producers depending on price elasticity. As a result, the quantity of guns sold decreases, illustrating reduced gun market activity due to the tax (Mankiw, 2021).

b. Tax on gun sellers

Taxing gun sellers shifts the supply curve upward (or leftward), as sellers now face higher costs per gun sold. The supply curve moves vertically up by the amount of the tax, causing the new equilibrium to have a higher price paid by consumers and a lower quantity sold. The price received by producers declines because part of the new higher price is absorbed by the tax; consumers pay a higher price, and producers receive less after the tax deduction. The difference between the consumer price and the producer price again equals the tax amount, shared depending on elasticities (Frank et al., 2018). The quantity sold decreases, indicating a contraction in the gun market as a consequence of increased production costs for sellers.

c. Binding price floor on guns

A binding price floor sets a minimum price above the market equilibrium, which leads to a surplus of guns because at the higher price, suppliers are willing to sell more, but demand decreases. In the demand and supply diagram, the price floor is drawn above the equilibrium price, creating a situation where the quantity supplied exceeds quantity demanded. The price paid by consumers remains at the floor level, often resulting in unsold guns, or excess supply. The price received by producers effectively becomes the floor price, as sales occur at this level, but some guns go unsold due to lack of demand. The quantity traded decreases if the quantity demanded falls significantly or remains stuck at the surplus level (Varian, 2014). The market experiences inefficiency, with potential for black markets or wastage of unsold inventory.

d. Tax on gun ammunition

Taxing ammunition increases the costs associated with guns but also impacts consumer behavior, especially among users who need ammunition to operate their guns. This tax effectively shifts the demand curve downward, reducing both the quantity demanded and the market equilibrium price. The price paid by consumers rises slightly depending on the elasticity of demand, while the quantity of ammunition (and indirectly guns) sold decreases. The price received by producers for ammunition decreases equivalently, or consumers pay part of the tax. The reduction in ammo and possibly guns sold can contribute to a decrease in gun-related violence, aligning with policy goals (Pindyck & Rubinfeld, 2013). Overall, the market outcome involves a lower quantity of guns and ammunition sold, and the taxes disincentivize gun use and ownership.

Analysis

In each policy scenario, the changes in equilibrium prices paid by consumers and received by producers depend on the specific market shift—demand or supply—and the elasticity of both curves. Taxes directly increase prices paid by consumers and decrease prices received by producers, reducing quantity sold. Price floors, conversely, set a minimum price that can lead to surpluses and decreased market efficiency. The choice of policy impacts consumer and producer welfare differently, but all aim at reducing gun availability to curb violence, albeit potentially at the cost of market efficiency and black market activity.

References

• Frank, R. H., Bernanke, B. S., Antonovics, K., & Frank, M. (2018). Principles of Economics. McGraw-Hill Education.
• Mankiw, N. G. (2021). Principles of Economics. Cengage Learning.
• Pindyck, R. S., & Rubinfeld, D. L. (2013). Microeconomics. Pearson.
• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach. W. W. Norton & Company.