Minjeong Moon mmoon ncsu edu EC201 001 December 21st 2014 ECON In The News Essay An article from The New York Times named In Japan Moves to Stimulate Economy Reach a Critical Stage reported that recently the value of the currency in Japan has significantly decreased The value of the Yen is down more than 30 percent against the Dollar since 2012 B2 According to Soble Hiroyuki Hara who is the owner of the flower shop in Japan has increased the price of the flowers due to the increase in sales tax Also his own costs are increasing as the expectations of future price increases and imported flowers become pricier Soble mentions that the sales tax increase has drawn the most intense opposition The tax increase has drawn two stages authorized by a previous government as a means of tackling Japan s vast public debt and next scheduled increase in tax amount up to 10 on October B2 The government is putting many efforts to get out of this deflation by buying their debt other assets and so on Economic output fell immediately after April s sales tax increase The increase in prices made it hard for both consumer and seller to keep their normal spending GDP has reached its lowest at 7 1 on 2nd quarter As we learned during the lecture taxes do many things Change market equilibrium change consumer and producer behavior decrease quantity sold in market place increase market price and decrease market efficiency Graph1 on the next page shows everything I assumed that in Japan s flower market due to the 50Yen tax increase supply has gone up and demand has gone down As the Market Equilibrium point has changed market price has increased from 90Yen to 110Yen and quantity sold has decreased from 9 to 5 affected by the recent tax increase When the Tax Revenue is bigger than Dead Weight Loss tax is considered efficient According to Graph2 tax revenue is 250 50 5 and Deadweight Loss is 100 50 4 2 which shows tax revenue is bigger than DWL Deadweight Loss meaning that the tax has a benefit However the tax still puts consumers and producers in a bad situation because producers costs increase and consumers can not buy the products that they usually used Thereby losing market efficiency Tax Incidence is the amount of burden that people bears from the tax which is what we care most about When there is a tax burden both consumers and producers have to bear it but the amount they have to pay is different The consumer tax incidence is the new market price minus old market price 110Yen 90Yen 20Yen and the producer tax incidence is the tax minus consumer tax incidence 50Yen 20Yen 30Yen Lastly the tax unit is the consumer s tax incidence plus the producer s tax incidence 20Yen 30Yen 50Yen We lose some economic surplus due to decrease in market efficiency Minjeong Moon mmoon ncsu edu EC201 001 December 21st 2014