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MICROECONOMICS PROJECT1
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MICROECONOMICS PROJECT1
The VAT is a tax on the consumption and purchases of the products when it adds value at the stage of the supply chain, from the point of production. A value-added tax (VAT) is the amount of tax charged by the businesses on the products and services at every sale transaction that adds value (Tait, 1988). The VAT is mostly expressed as a percentage of the total cost incurred. The amount of VAT remits to the government when paid by the consumer. The VAT is different from sales tax, and it is based on the invoice which is collected at various points throughout the production (Schenk et al., 2015). To keep the proper record of VAT, it is essential to preserve the history of all purchases. It could be maintained both in the manual log book and in accounting software. The software generates it automatically, which is further compiled to complete the quarterly VAT returns (Moon, 2017).
According to standard accounting scheme, the company has to complete four VAT returns per year. The VAT is paid for the sales made in each quarter of the year. Annual Using Cash Accounting scheme of VAT will help your cash flow especially when the payments from the customers are slow. In this scheme, a business doesn't need to pay VAT until it does not receive payments from the customers. Taxes can increase the revenue of the government, but it can increase the prices of the products and services (Sharma, 2017). Due to the raises in cost, the prices get higher, which results in a decline in the demand. The decline in demand curve also decreases the supply.
UAE excise tax on carbonated and energy drinks and tobacco to raise the revenue of government through the tax revenue (Shaikh et al., 2017). These 50 percent excise will reduce the demand for carbonated beverages. The demand will be elastic, and its sale will be decreased to a certain level while excise tax on 100 percent will double the prices of the products so the demand for these products will be unit elastic. The price elasticity of demand will be inelastic for those who are high-income people and habitual (Coglianese et al., 2017). While for low-income people and non-addictive people the price elasticity will be elastic. Similarly for the carbonated drinks, and energy drinks the price elasticity will be unit-elastic. The demand for these commodities will reduce by 1 unit due to the increase 1 unit of price. The most affected brand will be the carbonated drinks because these are already costly, and the use of cigarettes and carbonated drinks is higher so it will be maintained to a greater extent.
The total utility curve alongside with marginal utility curve for the trousers and T-shirts. It satisfies the law of diminishing marginal utility because with the increase of a single unit of these commodities the total utility increases while the change in the utility reduces. Within the given budget maximum utility can be achieved by purchasing four T-shirts which will give 150 utils, and two trousers 43 utils. None of the other combinations can give more utility than this combination.
Implicit cost is an economical cost also called opportunity cost; it doesn't involve the cash outflow from the business (Miller & Alberini, 2016). The implicit cost is that a company own a building and considering the rent of the business. While the explicit cost occurs when the company pays for its factor of production, it is the actual cost in which there is an outflow of cash (Luyten & Denier, 2018).
The long run is a time frame in which all the factors of production are variable, and their costs are also variable. While in the short run the firms can influence their prices.
The long-run average cost curve is U-shaped because of the economies of scale. The economies of scale mean to increase production to lower the unit cost. It shows the average cost per unit in the long run. The diseconomies of scale will increase the average cost in the long run.
Sunk cost, when incurred by a company, can no longer recover (Ho et al., 2017). The sunk cost is the decision taken by the business to invest in a project which completely, and the cost is not recoverable (Augenblick, 2015).
References
Tait, M. A. A. (1988). Value added tax: International practice and problems. International Monetary Fund.
Schenk, A., Thuronyi, V., & Cui, W. (2015). Value added tax. Cambridge University Press.
Moon, W. J. (2017). Tax Havens as Producers of Corporate Law. Mich. L. Rev., 116, 1081.
Shaikh, S. W., Worku, G. B., & Rao, A. (2017, December). Sectoral Evaluation for Economic and Financial Development in Dubai and the rest of the UAE. In International Conference on Advances in Business, Management and Law (ICBM) (Vol. 1, No. 1, pp. 1-29).
Sharma, C. N. (2017). GLOBAL PERSPECTIVE. CHARTERED ACCOUNTANT, 20.
Coglianese, J., Davis, L. W., Kilian, L., & Stock, J. H. (2017). Anticipation, tax avoidance, and the price elasticity of gasoline demand. Journal of Applied Econometrics, 32(1), 1-15.
Miller, M., & Alberini, A. (2016). The sensitivity of price elasticity of demand to aggregation, unobserved heterogeneity, price trends, and price endogeneity: Evidence from US Data. Energy Policy, 97, 235-249.
Ho, T. H., Png, I. P., & Reza, S. (2017). Sunk cost fallacy in driving the world’s costliest cars. Management Science, 64(4), 1761-1778.
Augenblick, N. (2015). The sunk-cost fallacy in penny auctions. The Review of Economic Studies, 83(1), 58-86.
Luyten, J., & Denier, Y. (2018). Explicit Cost-Effectiveness Thresholds in Health Care: A Kaleidoscope. Social Justice Research, 1-17.
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