The Australian government have suggested that they might need to increase GST to help fund the COVID-19 rescue package. GST is a tax on goods and services usually paid at the point of sale.Consider the market for bread. Suppose a loaf costs $4.15 and includes a 15-cent tax per loaf. q4- Has the government revenue increased or decreased? Explain the change using the concept of elasticity.
The Australian government have suggested that they might need to increase GST to help fund the COVID-19 rescue package. GST is a tax on goods and services usually paid at the point of sale.Consider the market for bread. Suppose a loaf costs $4.15 and includes a 15-cent tax per loaf.
q4- Has the government revenue increased or decreased? Explain the change using the concept of elasticity.
Elastic is an economic term that refers to a shift in customer and seller behavior in reaction to a change in the price of a good or service. In other words, a product's or good's demand elasticity or inelasticity is determined by how much demand varies as the price rises or falls. An inelastic product is one that customers continue to buy despite price changes. The price elasticity of a good or service varies depending on the number of close substitutes available, the relative cost, and the amount of time since the price change.
Important -
Companies that engage in highly competitive industries provide elastomeric products and services because they are price-takers.
When a good or service's price reaches the point of elasticity, sellers and purchasers modify their demand for that good or service fast.
Because it represents how much of an item or service customers would consume when the price increases or drops, elasticity is an essential economic statistic, particularly for sellers.
Elastic products or services are either redundant or may readily be replaced by a substitute.
The availability of substitutes is a consideration.
The easier it is for a shopper to switch from one product to another, the lower the price.
For example, in a society where everyone enjoys coffee and tea equally, if coffee prices rise, people will quickly switch to tea, and coffee demand will plummet. This is because coffee and tea are often used interchangeably.
The Factor of Urgency
The more discretionary a purchase is, the less it will respond to price increases in terms of quantity of demand. That is, the demand for the product is more elastic.
Let's say you're thinking about getting a new washing machine, but your present one is still functional. It's simply old-fashioned and out of date. If the cost of a new washing machine rises, you're more inclined to put off buying one until prices fall or your present device breaks down.
However, the less discretionary a product is, the lower the quantity demanded. Luxury things that people buy for their brand names are an example of inelastic items. Addictive products, as well as necessary add-on products like ink-jet printer cartridges, are very inelastic.
All of these items have one thing in common: they don't have a good substitute. Another tablet manufacturer will not suffice if you genuinely desire an Apple iPad. Higher prices do not affect addicts. In addition, only HP ink can be used in HP printers.
Sales skew numbers
The duration of the price fluctuation is also significant.
A one-day sale has a different response to price changes than a price adjustment that lasts for a season or a year.
Grasp the price elasticity of demand and comparing it across different items requires a clear understanding of temporal sensitivity. Rather than changing their behaviors, consumers may accept a seasonal price fluctuation.
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