Question

Suppose we are in a region where there is considerable amount of apple production. Locals argue that the apple orchards look pleasing and therefore they should be supported. As a result, the local government starts a tax-cutting program for apple production in the region. Using our regular graphing tools, can you show why such a policy might improve efficiency? Show both the optimum allocation and the market allocation in this case. Do not forget to explain why the market outcome is not the most efficient allocation in this case.

Answer 1

IF There is considerable amount of apple production. Locals argue that the apple orchards look pleasing and therefore they should be supported

The tax concessions will be subject to the condition of increasing local value addition over a period of time.Apple Inc wants to expand its contract manufacturer’s facility in the southern Indian tech hub of Bengaluru, a federal minister said on Tuesday, as the iPhone maker seeks a bigger share in one of the world’s biggest smartphone markets.Cupertino, California-based Apple last week started making iPhone SE at its Taiwanese contract manufacturer Wistron’s plant in Bengaluru..

Apple, which sold over 50 million iPhones in the March quarter, down 1 percent year-on-year, is looking for new markets as its sales in China have weakened.Among a set of tax concessions, Apple had initially sought a 15-years tax holiday for all components that it would import for setting up a manufacturing facility in India.

A panel of ministries rejected that demand and has offered a phased program to increase the share of local production in the manufacturing, Aruna Sundararajan, Secretary at the Ministry of Electronics and IT said.“We have offered them tax exemptions on those components which could not be manufactured in India,” Sundararajan told Reuters, adding that local manufacturing component would have to be increased gradually.Apple has agreed to increase local share in production over a period of time, but there was a difference between the plans of the two sides, she said.Apple was not immediately available for comment.

What are the effects of tax cuts?

Primarily through their impact on demand. Tax cuts boost demand by increasing disposable income and by encouraging businesses to hire and invest more. Tax increases do the reverse. These demand effects can be substantial when the economy is weak but smaller when it is operating near capacity.

Taxes and the Economy. ... High marginal tax rates can discourage work, saving, investment, and innovation, while specific tax preferences can affect the allocation of economic resources. But tax cuts can also slow long-run economic .