Question

Good $\mathit{X}$is produced in a competitive market using input A. Explain what would happen to the supply of good $\mathit{X}$in each of the following situations: a. The price of input A decreases. b. An excise tax of$\mathbf{\backslash (}\mathbf{3}$is imposed on good. c. An ad valorem tax of$\mathbf{\backslash )}\mathbf{7}$percent is imposed on good$\mathit{X}$. d. A technological change reduces the cost of producing additional units of good$\mathit{X}$.

Short answer

a)The supply of Good $X$will increase, as the cost of manufacturing the product will be lower

b) The cost of producing the product rises, the supply of good$X$decreases.

c) Raising the kind of tax will reduce the supply of good$X$.

d) The supply of Good $X$will increase.

Step-by-step solution

Given Information:

Given: A competitive market in which Good $X$is manufactured using input A. This event will take place on Good $X$. A reduction in the cost of input A. Good $X$is subjected to an exercise tax. Good $X$is subject to an ad valorem tax. Because of technical advancements, the cost of creating additional units of Good $X$decreases.

Step 2:To find the supply of Good in every situation:

a) The price of an input plays a significant effect in the supply of a good. As input prices rise, supply falls, forcing the producer to spend more money on materials for the product to be manufactured. In our example, the input price A falls. As a result, the supply of good $X$will increase, as the cost of manufacturing the product will be lower.

b) If an excise tax is established that is applied to each and every output separately. As a result, as the cost of producing the product rises, the supply of good $X$decreases.

c) If the product is subject to an ad valorem tax, which is levied on the price of the product. As a result, raising the kind of tax will reduce the supply of good $X$.

d) Reducing the cost of creating the product will benefit the producer because the cost of producing the product will be lower. As a result, the supply of good $X$will increase.