12 May HOW IS THIS TRADE ARRANGEMENT BENEFICIAL?
ES2550: ProjectPage 1Project Introduction:Different economic studies estimate the price elasticity of demand for certain goods, some ofwhich are reported on page 176 of the Hubbard/OâBrien textbook. The following table presentsselect elasticity of demand estimates from those reported on page 176.Product Estimated ElasticityBarnes & Noblebooks -4.00Coca-Cola -1.22Cigarettes -0.25Beer -0.23Gasoline -0.06Part 1: In your project, address the following questions:Using the elasticity estimates in the table above, classify the price elasticitydemand as elastic or inelastic. Explain your reasoning.Explain the implications of those classifications on tax revenue collections whenthe per-unit tax increases as opposed to decreases.Using those classifications, make some assumptions regarding tax incidence. Forinstance, will buyers or sellers pay a larger portion of the tax per unit? Explain.Based on the elasticity classifications, their effect on tax revenue, and taxincidence, which goods would the government prefer to tax?Part 2: In your project, address the following questions in this order:Using the ITT Tech Virtual Library, research tax rates imposed on cigarettes forthe state in which you reside and two surrounding states. Discuss the changes intax rates on cigarettes in those states over the last few years. Predict theimplication of this tax rate change on tax revenue according to theory. ES2550: ProjectPage 2Research the effect of changes in cigarette taxes on tax revenue for a state. Doesthis change indicate cigarettes have an elastic or inelastic demand in that state?Support your answer.Course Objectives Tested:1. Explain key microeconomic terminology.3. Create and use economic graphs and numerical models to analyze and solvemicroeconomic problems.5. Analyze the impact of government activity in markets.6. Determine optimal consumer buying decisions in the context of utility theory.PROJECT DESCRIPTIONâPART 2 (4.0 HOURS)Project Introduction:Suppose that the U.S. currently buys and produces wingdings, a fictitious economicgood. The U.S. faces the world price, and domestic suppliers sell as many wingdings aspossible at the world price. Now, the government succumbs to lobbying by wingdingproducers and imposes a protective tariff on wingdings amounting to $2 per wingding.The graph below represents this situation.ES2550: ProjectPage 3World PriceWorld Price + TariffU.S. SupplyU.S. DemandPriceQuantity (millions of pounds)6 1 2 1 6 1 8 2 6681 04Market for WingdingsPart 1: Answer the following questions. Use formulas and show calculations as well asfinal answers.a. Does the United States have a comparative advantage in wingdings? Explain.b. Discuss the effect of the tariff on the number of imports.c. How did the imposition of the tariff change consumer surplus?d. How did the imposition of the tariff change producer surplus?e. What is the overall result of the tariff in terms of welfare?Part 2: Allowing free trade between countries can be beneficial, but it also imposescosts. Use the ITT Tech Virtual Library to research the costs and benefits of allowing freetrade. Discuss aspects of free trade that some may consider unfair. For example:a. Distribution of costs and benefits of free trade. In other words, does everyoneshare in the gains and the costs equally?b. Competing with different labor restrictions (or lack thereof), such as slave orchild labor.ES2550: ProjectPage 4c. Differences in environmental standards.Part 3: Research trade between the United States and another country in any one of thefollowing areas: customer support services, garments, medical services, or technicalproducts. Discuss the following points:a. How is this trade arrangement beneficial? Explain.b. Are there any aspects of this trade arrangement that may be considered unfair,i.e. labor conditions or environmental conditions?c. Discuss a possible solution for minimizing harms mentioned in part b.Course Objectives Tested:1. Explain key microeconomic terminology.3. Create and use economic graphs and numerical models to analyze and solvemicroeconomic problems.4. Explain the costs and benefits of international trade, including calculation of gains fromtrade.7. Compare and contrast optimal pricing and output decisions in various marketstructures.8. Apply supply and demand theory to both product and factor markets.PROJECT DESCRIPTIONâPART 3 (6.0 HOURS)Project Introduction:Research and analyze the effects of the following government policies on the marketequilibrium.Increases in the Minimum WageRestrictions on International TradePollution ControlsNatural Monopolies and Anti-Trust RegulationES2550: ProjectPage 5When analyzing these policies, include some discussion of the following points whenappropriate:What is the purpose of the policy?Provide the rationale for the government policy. In this section, discuss howasymmetric information creates a need for the policy.Note 1: The necessity of the policy should be related to the purpose.Note 2: A discussion of asymmetric information should include defining how theinformation is unequal between consumers and producers as well as any adverseselection or moral hazard issues involved.The welfare of consumers, producers, and society (the winners and losers)before and after the policy.How does this policy affect the fairness of the distribution of costs and benefits?Does government intervention improve the situation?Note: Discuss whether government intervention affected the asymmetric information problem,adverse selection, or moral hazard previously discussed.Course Objectives Tested:1. Explain key microeconomic terminology.2. Differentiate between microeconomics and macroeconomics.3. Create and use economic graphs and numerical models to analyze and solvemicroeconomic problems.4. Explain the costs and benefits of international trade, including calculation of gains fromtrade.5. Analyze the impact of government activity in markets.6. Determine optimal consumer buying decisions in the context of utility theory.7. Compare and contrast optimal pricing and output decisions in various marketstructures.8. Apply supply and demand theory to both product and factor markets.ES2550: ProjectPage 6PROJECT SUBMISSION PLANProjectPartDescription/Requirements of Project Part1 Determine How Elasticity Affects the Governmentâs Decision to Tax CertainGoodsSubmission Requirements:Submit all work in one Word document (minimum of 600 words).Times New Roman 12-point font.Formulas and calculations must be shown along with the final correctanswer.Formal references in APA format must be provided.This submission must be paraphrased in your own words. Adhere tothe academic honesty policy.No more than 10% of your document can be quoted. Avoidanswering any of the questions with a quote. Quotes should supportyour discussion instead of answering questions for you.Due: Week 5Grading Weight: 5%2 Comparative Advantage and Restrictions on International TradeSubmission Requirements:Submit all work in one Word document (minimum of 600 words).Times New Roman, 12-point font.Formulas and calculations must be shown along with the final correctanswer.Formal references in APA format must be provided.This submission must be paraphrased in your own words. Adhere to ES2550: ProjectPage 7ProjectPartDescription/Requirements of Project Partthe academic honesty policy.No more than 10% of your document can be quoted. Avoidanswering any of the questions with a quote. Quotes should supportyour discussion instead of answering questions for you.Adhere to the academic honesty policy.Due: Week 7Grading Weight: 5%3 Discuss the Effect of Government PoliciesSubmission Requirements:Attach a Word document of 750 minimum words with anintroduction and a conclusion.Format: Double line space, Times New Roman, 12-point fontFormal references in APA format must be provided.This submission must be paraphrased in your own words. Adhere tothe academic honesty policy.No more than 10% of your document can be quoted. Avoidanswering any of the questions with a quote. Quotes should supportyour discussion instead of answering questions for you.Due: Week 10Grading Weight: 5%(End of Project Description)
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