Consumption Essays Example
This exercise pertains to the concept of consumption in economics. And it defines how the quantity of consumption varies with a certain change in demand and in prices. The exercise makes the student to understand the idea that how a certain reduction in the price would lead to an equal increase in the consumption of the consumer. Similarly, it also states the indirect relation of demand with consumption. I have included this exercise in my portfolio, because it has given me a different view to understand the importance of consumers, firms and government in our economic system.
As mentioned above, the idea of consumption clarifies the role of consumers in the entire economic system. It explains how consumers can increase or decrease the demand for a certain product. Then ultimately an increase or decrease in demand would affect the price of a certain product. In this way, a consumer may affect both the overall demand for a product at the same time the price of a product. Not just do the consumers give starting push to the overall production process, however their desires administer the volume and type of all the production capacities all through. In the event that the consumers are fulfilled, business flourishes and the process of productivity grows. Be that as it may if the consumers happen to abhorrence a merchandise or feel that its cost is too high, it is possible that the production of that product will ultimately come to an end. It is therefore important for all the manufacturers to keep its consumers satisfied with both the quality of the product as well as the price.
It can be identified through the exercise that the presence of needs is the initial point of all financial movement and afterward increasing or development is the basic logic behind all monetary advancement. Augmentation of needs and monetary advancement go together. Producers attempt to figure out better and more beneficial strategies to fulfill the consumers. This prompts the revelation of new products and new procedures and the creation of new machines. Each financial exertion made to fulfill one need makes more needs. The all-swarming impact of consumption can be seen in all extensions of economic achievements. Consumers direct and guide the production capacity required. It is the power of consumers' goals which decides costs in the business. Consumption in this way applies its impact on trade too. Without consumption there would have been no trade. Subsequently, the significance of consumption can't be over-emphasized. It is all-pervasive. It influences all monetary actions and adds to financial advancement. It decides the way of life of the individuals as well.
In addition to this, this exercise made me realize the role of firms and government in this economic system and how the quantity consumed is the main function based on which the management of the firm make decisions regarding its total production and the profit margin of the product based on its overall cost. It can be identified with the help of this exercise that a manufacturing or service based organization should always keep a track of its consumers and should always keep itself updated regarding the changing needs and wants of its consumers. Because, if the consumers would stop buying their products the company would ultimately have to close their production processes; which would cause a financial loss for not only the owners of the but at the same time it will cause a damage for the entire economic system. Hence consumers formulates the basis for a firm to continue its production activity and considering that it is the responsibility of the government to maintain that balance in the economy by not letting any outer forces to influence the overall economic system of consumption and demand.
Moreover, this exercise elaborates that the concept of consumption is exceptionally significant to understand for our community as it is the starting and also the end of all monetary exercises. A man has a particular want and after that he make attempts to fulfill it when the exertion has been made the outcome is the fulfillment of the need. Hence need is the starting and fulfillment the end of our financial movement. The generation, as a monetary action relies on consumption. Producer is taking generation of a certain decent on the grounds that it will be devoured by the purchaser. Hence consumption decides the generation. The power of consumption of specific products decides the cost in a business sector. Subsequently consumption additionally impacts the trade action. The presence of trade in an economy is because of consumption. Consumption demonstrates way of life and way of life decides the effectiveness. Similarly, productivity decides the offer in the national earnings.
Taxation on labor market is a topic that has a direct impact on us (college graduates) as it is the time when we are entering the labor market and will have to start paying taxes either directly or indirectly (indirectly when the taxes are imposed on the employer). It is important to understand how different government policies will affect the take home wages we get and what is better for individuals and the society: a tax on the employer or the employee? It is also necessary to have an understanding the social reasoning, the effects and the importance of payroll taxes in an economy. This understanding helps an individual to know whether the idea of taxes on their income should inherently demotivate them from working or are their benefits of paying taxes.
Payroll taxes are levied by the government either on the employers or employees or both. Either of these scenarios have impact on the labor market of any economy. Payroll taxes affect the demand (willingness and ability to hire) of labor and supply (willingness and ability to work) of the labor market. Hence, also affecting the equilibrium level of wages (market wage level).
Payroll taxes that are levied on the employer it reduces the demand of labor by the employers. The cost of hiring increases for the employers. This downward (reducing demand) pressure in the demand for labor reduces both the market equilibrium level of employed people and also the market wage level. Although the tax is levied on the employer, in real terms employee also bears some cost as their wage is reduced since the employer now has to pay some portion of its cost to the government (also known as transferring some burden to the employee).
Payroll taxes that are levied on the employees it reduces the supply of the labor. The reason being that for every dollar of wage an employee earns he now has to pay higher portion to the government. This leads to employees being less motivated to work. This upward pressure (reducing supply) pressure in the supply of labor increases the market equilibrium wage and reduces the equilibrium level of employed people. Although the tax is levied on the employee the employer also bears some cost as the wage they have to pay to the employees (a portion of which employees pays to the government as tax) increases.
The assessment of both types of tax imposition method produce’s broadly similar results. Payroll taxes reduce the amount of wage employees take home and increase the cost of labor for the employers and reduce employment. This ultimately would have an important effect on the overall living standard of an employee. This would also identify how much an employee would be able consume and how much an employee would be able save for the future. Hence this exercise provides an idea how payroll taxes can affect the total earnings of an employee and this concept directly affects all people of the community who depends on their monthly income for the purpose of the fulfilment of their needs and desires.
In addition to this, this exercise also provides an idea that as a lay man one might think that as long as the taxes are not being imposed on the labor the employee doesn’t lose. But a clear understanding of the impact of payroll taxes even when imposed on the employer changes this perspective. As discussed above the employee also bears the cost in terms of lower equilibrium wage and employment in the market after the tax being imposed on the employer. This helps understand how the employers hiring behavior changes. Hence this gives an understanding from the employer’s side; which definitely are an important part of our society.
The idea of taxes is broadly based on economic pluralism. Economic pluralism refers to the economic ethics of business activities. Economic pluralism is based on the notion that “whole is greater than sum of parts”. Which means activities should be on the idea the whole society should be given an opportunity to grow and advance and economic activities should work towards the greater good. This is a complete opposite of Economic capitalism which is based on the notion of “zero sum game”. Which means if one part of the society gains the other loses.
Taxes are used by governments to reduce income inequality. In a progressive taxation system individuals with higher income levels end up paying higher taxes compared to individuals with lower income. This brings the disposable income at hand of individuals closer and thus reducing income inequality.
The amounts collected by taxes are often spent on social activities like unemployment benefits, low income support programs etc. Governments also use these funds to provide welfare services like education health.
The understanding of this exercise of payroll taxes helps us see how we are the part of the whole economy and society. How we contribute towards the social development and welfare of the society. However, it does create a dilemma. Should I be the one working and paying taxes for the greater good? Or should I take benefit of the unemployment benefits and other government support programs which are generally funded by taxes.
Supply- positively slope
Demand- negatively slope
If supply decreases price increases and demand decreases.
Deadweight loss would never go to producer or the consumer.
Employer able to purchase 2 units of labor at a wage of $9 means demand decreases whereas producer surplus decreases consumer surplus increases. On the other hand, employer able to purchase 8 units at a wage of $6 means demand decreases while producer surplus decreases and consumer surplus increases.
Pink shaded-deadweight loss
Red shaded-producer surplus
The effect of payroll tax of $2 per unit of labor against employees $1 against employers this show that total tax is of $3.
The graph above shows the effect of payroll tax against employees and employers. This demonstrate that if supply increases demand increases.
Price of ice cream= $2
Original price of magazines= $4
New price of magazines=$2
It can be said that consumer will spend equally on both the things. She will purchase the ice cream cones for $10 and magazines for other $10.
3) The consumer will purchase magazines thrice as the amount of magazine has reduced to $2.
4) The law of demand remains the same whereas the quantity of the demanded good increases when its price falls and vice versa. This show that this demand for magazines follows the law of demand as the price of the magazines decreases from $4 to $2.