Question

1. When the country opens up its market to foreign countries, who will be the winner? Consumer? Or a supplier?

2. If the tax levied on an item increases, how do the buyers and suppliers of the item share the tax burden? And what will happen to the total surplus?

Answer 1

answer1)the multinational companies are coming in to find new opportunities for growth. Their arrival is a boon to local consumers, who benefit from the wider choices now available.and they will have products at competitive prices with interantional quality.on the other hand it is the suppliers who has to bear the loss of competitive entries in the market.foreign rivals have a array of advantages: substantial financial resources, advanced technology, superior products, powerful brands, and seasoned marketing and management skills. Every small and local business owner knows that their competition isn’t limited to fellow small businesses. There are giant brands represented in cities and towns across the country, meaning you’re left to compete with other local shops plus the corporations with big marketing budgets and even bigger name recognition.

so consumer is in win win situation ,and supplier has to struggle.

answer 2)Taxes are an important source of revenue for the government. However, taxes decrease both supply and demand in the market, because buyers have to pay a higher price and sellers receive a lower price for their product.

To better see how the elasticity of supply and demand affects tax incidence, consider a 30% tax on a can of soda. Suppose the government decides that the buyer should pay the 20% tax. Does this mean that the buyers will be paying 30% more, or will sellers have to share some of the tax burden,Since higher prices decrease demand, regardless of why, sellers will share some of the burden. How much of the burden will be determined by the elasticity of supply and demand for the product.

Only if either demand or supply was either completely elastic or inelastic will the tax burden fall entirely on either the buyer or the seller. Between these two extremes, tax incidence varies continuously from a perfectly inelastic supply or perfectly elastic demand, where the sellers assumes the entire burden of the tax to the perfectly elastic supply or perfectly inelastic demand where the buyers bear the entire burden. the tax burden will fall more on the buyer if demand is inelastic or supply is elastic, but will fall more on the seller if demand is elastic or supply is inelastic.

total surplus:

total surplus will fall,total surplus is acombination of consumer surplus and producer surplus,as both have to bear the tax,both the surplus will fall results in fall in total surplus.

Some of the consumer surplus from before the tax will now be part of the tax revenue. The amount of the tax revenue collected that previously belonged to consumer surplus is the consumer's tax burden

Some of the producer surplus from before the tax will now be part of tax revenue. The amount of the tax revenue collected that previously belonged to producer surplus is the producer's tax burden.

answer2()