Micro12isa Essay Example | Topics and Well Written Essays - 1500 words

Micro12isa - Essay Example This shows the boom period in which the minimum wage is increased because of which restaurants owners have to pay more to their waiters as well as it increases the cost of meals and would result in increase in unemployment. The demand and supply curve in the above graph show the impact of the taxes imposed by government on price and quantity demanded. In the above graph the Pe and Qe are the equilibrium price and quantity demanded respectively. Suppose the government imposed tax on any good and the amount of this tax is shared by both producers and the consumers as well. Supply curve shifts from S to S1 because of this tax as the producer desires to sell the good at higher prices in order to decrease the tax’s effect on him and this result in the increase in the price of the good from â€Å"Pe† to â€Å"Pt† as well as decrease in the quantity demanded â€Å"Qe† to â€Å"Qt.† Therefore from the graph we can conclude that if government imposes on any good it would result in decrease in the producer’s revenue, raises prices for consumers, and decreases the quantity of the good available in the market. Now let suppose the government put a tax on this product and also the demand curve is perfectly elastic then the supply curve shifts leftward that is the producer will decrease the supply of product because of which the producer’s surplus decreases and he will have to pay the tax. This we can in the graph given below. Apparently the producers seem to have little costs due to the drug being illegal so the trading does not include any taxation. However the usual cost includes cost of production, transportation, legal actions that may be taken at any step by law enforcing agencies in case of being caught. In case the contrabands are made legal, governments will impose taxation and duties on their trading due to their harmful effects. Such duties will decline the producer surplus and the part of their