Price Elasticity of Demand is a very important concept for businesses and governments to understand. If this concept is not understood properly government policies could do a lot of harm to an economy.
Read the article about the impact an indirect tax had on the market for Botox in the state of New Jersey (USA) and answer the following questions:
1) What did the government think the PED for Botox was? Explain.
2) What was the purpose of the indirect tax?
3) What do we see the Botox PED actually being? Why.
4) How has this tax impacted businesses in New Jersey? Draw a diagram to explain.
5) Evaluate the government decision to get rid of the Bo-tax?
EVALUATION: to make an appraisal of the argument or concept under investigation in the discussion/weight the nature of the evidence/identify and discuss convincing aspects/limitations and implications. Evaluation can be done by considering the following questions:
1: What are the benefits and consequences?
2: What are the effects on the stakeholders? (Think about all those groups affected? Producers, consumers, poor, middle class, rich, voters, the government, the environment, etc. )
3: What are the short term effects versus long term effects? (If this fixes the problem in the short term, could it create problems in the long run? If the problem is fixed in the short term, will it create problems in the long run? Will this policy create other problems?)
4: Discuss the validity of the theory.
Unfortunately for New Jersey (and the cast for Jersey Shore) Obamacare is now including a federal tax on tanning. First botox now tanning, what are the people on the Jersey shore going to do? Imagine if they taxed hair gel, riots might even break out.
Check the video below to see how people are reacting. Consider what the PED of tanning might be from the statements people are making.
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