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Demand And Supply

Effects of a shift in demand and supply

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Effects of a shift in demand and supply

Question 1

If the government increases the unit sales tax, the price of products will go up. It will affect even the older products in the market. The companies will pass this imposed tax to their customers through the final product, which therefore makes the supply curve does not affect. This will increase the marginal cost per unit, which will, in turn, lead to a higher or lower supply of goods, depending on the prices at that time. Demand increases as prices go up, which therefore shifts the demand curve to the left. This is as a result of the imposed tax. If the producers increase the cost of the goods and services, then the demand decreases. This, therefore, leads to a lower supplier of these goods and services. This surpasses the amount of products in stock for supply since the demand is down (Shapiro, Alan, Paul). Therefore the new tax would likely create a disequilibrium due to the increase in market price. This market price could be above the equilibrium, and the supplied quantity would also be higher than the quantity demanded to have a negative effect on the producers.

Question 2

If the gas prices are low, people tend to travel more, which in turn lowers the demand for electric cars. If the government imposes high tariffs on imported vehicles, the prices for these cars tend to go up. This may cause the people to want to invest more in gas reliant vehicles locally rather than imported vehicles. The sales will similarly fall due to this increase. This would thus open doors for the Tesla Model X that is locally found within the US markets. The company will maintain its prices since, at that time, the gas reliant cars will be high in terms of prices. The Tesla X manufacturers, therefore, would not want to lose customers as they look for other means of transport (Tenhundfeld, Nathan, et al., 279). The trade battle between China and the US has seen China put an import tariff for the Tesla X of around 40 percent, which is on the higher side compared to others that have a 15 percent import tariff. To lower these tariffs, they have constructed the new shanghai factory.

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