Discuss about the Industry Concerns Mining Tax Implemented.
The Fair Work Commission issued a detailed report indicating significant slashes in the level of penalty rates in the country. Specifically, this penalty rate reductions are effective for the restaurant, hospitality, fast food and retail industries (Australian Government, 2017). Notably, these decreases in the overtime pay rates will have significant effects on the demand and supply of labor. In addition, there are bound to be significant changes in the level of worker productivity in the affected industries. To begin with, a decrease in the penalty rate for Sunday workers will significantly reduce the level of income of the employees in the industry. In turn, this creates hardships to the individuals affected, thus reducing their morale. Even so, the reduced penalty rates work to the advantage of restaurants due to a significant reduction in the labor costs.
Principally, the reductions in the average pay rates for overtime workers will reduce the amount payable by restaurants as wages. In turn, this will significantly reduce their wage expenses (Australian Government, 2017). For this reason, restaurants will be able to hire more workers to work on the weekends. It is imperative to note that restaurants often experience peak hours during this period (Chung, 2017). Thus, an increase in the supply of labor will increase the overall output for the business. Consequently, increased output will facilitate an increase in the profitability of the enterprise (Hutchens, 2015). Therefore, the slashing of the penalty rates in the country will improve the profitability of businesses in the hospitality, restaurant and retail industries.
Negative externalities refer to the costs incurred by third parties as a result of economic activity. Essentially, they are the spillover effects that affect individuals, the society and environment negatively. Predominantly, they occur when an agent making a given decision does not pay the full cost of their action. Often, the generator of the externality does not pay for the extra costs. When an externality occurs in an unregulated market, producers do not take responsibilities for the external costs that they pass on to society. For this reason, they experience a lower marginal cost than they would otherwise have. Thus, this results in a shift in their supply curve towards the right. At this point, the marginal costs are greater than the marginal benefit to the society. In turn, this results in the creation of a deadweight loss in the society. As such, it brings about significant social welfare losses.
In the diagram, the deadweight loss of social welfare results when the Marginal social cost exceeds the marginal private costs. The optimal production for the firm is at point Q1, but the existence of the externalities pushes the production to point Q2, thereby resulting in the production of the deadweight loss. A perfect example of a negative externality is pollution. For instance, a production company has to pay for the cost of materials, electricity, among other production expenses. However, the surrounding community has to shelter the cost of pollution since it will cause them to incur higher medical costs, reduced aesthetic appeal of air and poorer quality of life. In this regard, the production company has a negative cost to the society surrounding the firm.
Market economies are a significant component in the modern world. Essentially, a market economy is one in which competition from enterprises is responsible for making economic decisions within the country. In this market, the law of demand and supply direct the production of services and goods. The aggregate demand comprises of purchases by the government, businesses and individual consumers (Amadeo, 2017). Characteristically, producers strive to sell their products at the highest possible price while consumers aim at purchasing goods and services at the lowest possible price (Amadeo, 2017). In the same way, the labor force bid their service at the highest possible wages that their skills and expertise can attract. Likewise, employers try to find the best workers at the lowest possible wage.
It is imperative to note that market economies have a major influence on the environment. In the modern world, environmentally friendly operations are emphasized. Particularly, eco-friendly businesses are encouraged (Zokaei, 2013). Markedly, competitive and environmentally friendly businesses have become the order of the day. Despite the self-interest motive in the market economy, businesses are continuously taking an eco-friendly approach while maintaining significantly high-profit margins (Kursman, 2015). Many companies such as DuPont and Unilever have embraced environmental friendly actions in their operations. Both companies receive huge profits as a result. Thus, a market economy can be environmentally friendly.
Typically, renewable energy acts as a substitute for the contemporary energy. Therefore, setting up a new renewable energy plant in New South Wales will give the residents alternative sources of energy. In turn, this will reduce the supply of energy in the region. Predominantly, this will be as a result of a decrease in the level of demand for energy as consumers shift from the use of fossil fuel energy to renewable energy Consumers will shift to the use of renewable energy if its prices dropped while the price of energy remained high. Consequently, this will significantly reduce the supply of energy.
If the university fees across the Australia increased as a result of higher costs of providing higher education, the currently enrolled students are expected to continue their education. Additionally, the number of units that students undertake at the University is expected to remain constant despite the price hike. Mainly, this is because the elasticity of demand for higher education is relatively inelastic. More specifically, higher average prices do not reduce the number of students who continue their education. According to Funk (1972), the demand for higher education is based on the view that higher education is both consumption and investment decision. More specifically, the investment approach proposes that the demand for higher education depends on the PV of expected streams of future benefits.
Predominantly, those who incur higher costs now in the form of tuition fee expect to receive greater returns in the future in terms of higher salary levels compared to individuals who drop out of the University (Funk, 1972). Thus, the present costs of education will be covered by the expected future streams of income. The expected future wage rate incorporates and reflects the labor market conditions, thus captures the opportunity cost of completing the college education. For this reason, the students are expected to continue their education despite the increase in the fees.
One would expect that the students will act in a rational manner and continue with their college education. Also, the number of units that they undertake is expected to remain unchanged. Primarily, this is because college students have the hope that their investments in higher education will result in great returns in the future in the form of huge salaries and wages that are greater than those individuals who lack a college education.
Naturally, an introduction of tax has significant adverse implications for firms. Thus, if the government in Western Australia introduced a new mining tax to be paid per unit of ore sold, it will have a negative effect on the mining output in the region. More specifically, the tax will act as a disincentive to investment in the mining or iron ore in the region (“Mining Facts,” n.d.). Mainly, this is because the tax will skim off a large proportion of the company’s profits, making the mining activity unprofitable. As such, the after-tax profits for the mining companies will drop significantly. Regardless, the Western Australian people will benefit as a result of the tax in the form of tax cuts for small enterprises and households, and the development of infrastructure projects, among others.
To a large extent, the tax will adversely affect the iron ore sector in Western Australia. Typically, the tax incidence will affect both the supply and demand of iron ore in the region (ABC, 2012). Mainly, this is because mining corporations will reduce their overall output, forcing the prices of the product to go up. Alternatively, the company may decide to pass the tax incidence to the consumer by raising the price of the product to cover the tax (Tenebrarum, 2012). Given that the elasticity of demand for the product is relatively inelastic, the consumers of the product will bear the burden of the tax. Thus, the imposition of the tax will result in the creation of a deadweight loss in the sector.
Over the past few years, robot technology has become common the agricultural sector. Notably, the use of robots in agricultural production processes has significantly improved the production capacity of many farms in the world. Therefore, the use of ‘farmbots’ will significantly increase the supply of agricultural produce in the country (Graetz & Michaels, 2015). Also, in the long run, the use of machine is cheaper and more effective than the human labor (Ramey, 2012). Thus, the supply of agricultural products will increase significantly as a result of the robot technology.
By extension, the demand for agricultural products in the country is expected to increase. Mainly, one can attribute this to the fact that the increased supply of farm products in the market will exert negative pressure on the price of the product. Thus, the price will drop significantly. Consequently, the demand for the product will increase from Q1 to Q2 as shown in the diagram above (Harvey, 2014). In this regard, an increase in the use of robot technology will be beneficial for both producer and consumers.
Typically, police services are provided by the government. Mainly, this is because the service is a public good and private investors are more reluctant in investing in such projects. Therefore, if the government stops to provide this service and it is privatized, the demand for the product will significantly decline. Mainly, this is due to the fact that their services are not excludable or rival, and the use of the service by one individual does not affect the use by another (Green & Blair, 1995). This brings about the joyrider problem as more individuals would wait to benefit from the services after other people have purchased it. For this reason, the service has a relatively elastic demand. In this regard, a slight rise in the price of police service will bring about a more than proportionate fall in the demand for the product.
Typically, the price elasticity of demand (PED) refers to the relationship between the price of a product and its demand. More precisely, it is the responsiveness of the demand for a product in reaction to changes in its price. It measures price sensitivity. A product may have a unitary, relatively elastic or relatively inelastic PED. It is imperative to note, however, that the concept of elasticity is not confined to the demand curve. Mainly, this is because there is also price elasticity of supply. In this case, it measures the responsiveness of supply to changes in the price of the product and the income of the consumer. Therefore, elasticity measures the responsiveness of one variable to changes in other variables. In this regard, it is rational to say that the concept of elasticity is not confined to demand curves.
Reference List
ABC. (2012). Industry concerns as mining tax implemented. [Online] ABC. Available at: https://www.abc.net.au/news/2012-07-01/mining-tax-takes-effect/4102940 [Accessed 12 Apr. 2017].
Amadeo, K. (2012). Market Economy: Characteristics, Examples, Pros, Cons. [Online] The Balance. Available at: https://www.thebalance.com/market-economy-characteristics-examples-pros-cons-3305586 [Accessed 12 Apr. 2017].
Australian Government. Penalty rates & allowances. [Online] Australian Government. Available at: https://www.fairwork.gov.au/pay/penalty-rates-and-allowances [Accessed 12 Apr. 2017].
Chung, F. (2017). Sunday penalty rates slashed by Fair Work. [Online] News.com. Available at: https://www.news.com.au/finance/work/at-work/sunday-penalty-rates-slashed-by-fair-work-commission/news-story/debbd0c1fd8de8fe3898ca51950b4f5b [Accessed 12 Apr. 2017].
Fundamental Finance. Negative Externality. [Online] Fundamental Finance .Available at: https://economics.fundamentalfinance.com/negative-externality.php [Accessed 12 Apr. 2017].
Funk, H. J. (1972). Price Elasticity of Demand for Education at a Private University. Journal of Educational Research, 66(3), pp.130-132.
Graetz, G., and Michaels, G. (2012). Estimating the impact of robots on productivity and employment. [Online] Robo Hub. Available at: https://robohub.org/estimating-the-impact-of-robots-on-productivity-and-employment/ [Accessed 12 Apr. 2017].
Green, D., and Blair, I. (1995). Framing and the Price Elasticity of Private and Public Goods. Journal of Consumer Psychology, 4(1), pp.15-23.
Harvey, F. (2014). Robot farmers are the future of agriculture, says government. [Online] The Guardian. Available at: https://www.theguardian.com/environment/2014/jan/09/robots-farm-future [Accessed 12 Apr. 2017].
Hutchens, G. (2015). Reduce Sunday penalty rates, says Productivity Commission. [Online] The Sydney Morning Herald. Available at: https://www.smh.com.au/federal-politics/political-news/reduce-sunday-penalty-rates-says-productivity-commission-20151221-glsfh3.html [Accessed 12 Apr. 2017].
Kursman, S. (2012). Businesses can be competitive and environmentally-friendly. [Online] The New Economy. Available at: https://www.theneweconomy.com/strategy/businesses-can-be-competitive-and-environmentally-friendly [Accessed 12 Apr. 2017].
Mining Tax facts. (2012). The Facts. [Online] Mining Tax facts. Available at: https://www.mining-tax.com.au/ [Accessed 12 Apr. 2017
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Reed College. (2012). Case of the Day: Elasticity of Demand for Higher Education. [Online] Available at: https://www.reed.edu/economics/parker/f10/201/cases/elasticity.html / [Accessed 12 Apr. 2017].
Tenebrarum, P. (2012). Australia – Effects of the New Mining Tax. [Online] Acting Man. Available at https://www.acting-man.com/?p=20523 [Accessed 12 Apr. 2017].
Zokaei, K. (2012). Environmentally-friendly business is profitable business. [Online] The Guardian. Available at: https://www.theguardian.com/sustainable-business/environmentally-friendly-sustainable-business-profitable [Accessed 12 Apr. 2017].
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