Sieeanret itera 3/CS Internal assessment: Group 3 individual candidate cover sheet Arrival date: 20 April/ 20 October Session: Ay “201 schootnumber[ __] _ Schoo! name: = Please retain a copy of this form either using the Save as function or by printing a copy Complete this farm in the working language of your schoo! (English, French or Spanish) Attach one completed copy ofthis form to the work of each candidate represented in the sample. - After completing ths form it must be printed and then signed by the teacher and candidate to confirm the authenticity ofthe work sub: [Sogn OMICS | tevet [AC] Candidate name: Candidate session number: Tile(s) and dates of work: (complete If appropriate) a @ 8 ® Teacher declarati To the best of my knowledge, the material submitted is the authentic snk of the candidate, Teacher's name: Signature: bate: |Z, wa id Candidate declaration: | confirm that this work is my ovin work and isthe final version. have acknowledged each use of the words Cr ideas of another person, whether written, oral or visual -andidate's signature: Date:| | fe oF Types of work undertaken (to be completed by teaches) {for example, witten assignment/essay/case study/fieldwork/portolio/photography/video/computer) Business and management SL: the issue or problem selected for the commentary must relate tothe SL syllabus and refer directly toa single business organization (Business and management guide, March 2007, page 52) Other relevant information (where appropriate) ‘Teacher support (where a candidate could not have completed the work without substantial support, please indicate)S/PUed Ja Piva paliemarEd Ny souEd WJOS asouty) soqutouodg] TOPOS SSTUTYD-WO-S FTE “SAR |S-SN TSTNTONAS uo suet y3tH | ZLOZ/OL/ZZ ose Tevonewory ZrOT/SO/LT PIQATUMGR SOCOM TSUTAT MANAG | sdBis "S's 33 Aurou0og ayp se uy ut | Z107/80/CI Ste sommouosaaxsey | 7107/90/80. Smo[S LONE YUL, ae ie suedxq Sm Ayisoqg aonpay, PinoD sepos | Z10z/90/01 ze sopuouossosr | Z10Z/90/10 wo $oxe.| BIH AIWjUD TO OF yunoy | poyurysnqeiis | ojmay BLOM. Jouossg | joawa apnay Jo a9an0g apmry soon, | od Joquinyy areprpueD, Sepypted Jo ou, Je9ys1240) oNofisod MMAUSSASSY PoUssfUy :sonuMOUOD [2427] pAnpUD}S PUD J2437 SOYSIETMay 2013 IB Economics — Internal Assessment (Number 1) Coversheet School Code: Name of School: Candidate name: ‘Candidate number: ‘Teacher: Title of the article: “High Taxes on Sodas Could Reduce Obesity Rates, Experts Say” ‘Source of the article: Seattle Post-Intelligencer ("Seattlepi") sodas-coul: Date the article was | 01/06/2012 published Date the commentary | 10/06/2012 was written ‘Word count 742, (750 word maximum) Section of syllabus the article relates to ‘Z] Section 1: Microeconomics Section 2: Macroeconomics Section 3: International economics Section 4: Development economicsMay 2013, Article: High Taxes on Sodas Could Reduce Obesity Rates, Experts Say Imposing hefty taxes on sodas could curb consumption and make a significant difference in the fight against the current obesity crisis, according to health experts from Oxford University in England. The authors of a study published in the British Medical Journal (BMJ) proposed a tax rate of 20 percent or more on sugary drinks, which are widely considered a major cause for weight gain both in Europe and North America. “We've tried other measures to reduce obesity and they haven't worked.” said Dr. Mike Rayner, director of the British Heart Foundation, a research group at Oxford University and lead author of the study report For the study, Dr. Rayner and his colleagues examined taxation policies on sodas in other countries as ‘well, including the United States. They found that small to modest tax rates of one to eight percent were insufficient to make consumers change their buying habits. But when some cafeterias on high school and college campuses introduced price hikes of 35 percent or more, consumption dropped almost immediately. ‘Taxes on sweetened o carbonated drinks should be on par with tax rates on other unhealthy products like tobacco or alcohol because they are equally as threatening to public health, the study concluded. ‘The concept of reducing consumption through heavy taxation is not only being applied to sodas in some parts of Europe. Denmark has taxes for saturated fat, Norway taxes sugar and chocolate. High taxes on alcohol are common throughout Europe. A spokesperson for the National Obesity Forum (NOF), an advocacy group of health care professionals in the United Kingdom, said that taxation at high levels ‘would be an incentive for soda manufacturers to reformulate their products. In the U.S,, “cold, bubbly, sweet soda, long the American Champagne, is becoming product non grata in more places these days,” according to the New York Times (5/15/2012). “Schools are removing sugary soft drinks from vending machines and local governments are stepping up efforts to take them out of public facilities as the nation’s concerns about obesity and its costs grow.” ‘Some school districts have taken up initiatives to reduce or outright eliminate soda consumption among their students, One example is a small town named Faulkton in South Dakota where soda cor zo longer tolerated on school campuses, even if they were purchased outside or brought from home. “This is really important because sugary drinks are the number one source of calories in our diets,” said health advocate Dr. Margo Wootan, director of nutrition policy at the Center for Science in the Public Interest (CSPI). “We get more calories from sodas and sugary drinks than any other individual food — cake, cookies, pizza, anything.” ‘The American Beverage Association (ABA) rejects such characterization. “Singling out one set of products in such an overly simplistic manner only undermines efforts to combat this complex issue,” it said in a written statement. The ABA and other industry groups have long objected to imposing taxes on their products, claiming that such measures would damage the industry and lead to job losses. On the other hand, companies like Coca Cola and PepsiCo have changed their packaging formats in recent years and offer now a wider variety of sizes from 7.5-ounce mini cans to 2-liter plastic bottles. ‘They also raised prices, which tured into higher profits. Especially sales of mini cans are, as one representative put it, “on fire.” It is hard to miss the irony that the same industries that have obsessively opposed taxes on their products to curb consumption are now cashing in on the message first conveyed by health advocates that less is more.May 2013 ‘Taxes, specifically indirect ad valorem excise taxes, which are addressed by Timi Gustavson in this article are defined as, "[taxes which are] imposed on particular goods and services," which “finvolve] a fixed percentage of the price of the good or service;"" The article suggests that a high tax on soft drinks could aid in curbing obesity. The way in which this is achieved is due to the nature of excise taxes: high taxes increase prices and an increase in prices results in a decrease in levels of consumption (given ceteris paribus) and assuming that the price elasticity of demand or PED — which is "a measure of the responsiveness of the quantity of a good demanded to changes in price,"* is elastic. Hence, a large tax hike would significantly lower consumption rates of soft drinks. But, it is worth noting that the PED of soda is still relatively low in some countries due to minor addiction in certain people. Implementation of ad valorem tax on sodas_ ‘The tax rate of 20% or more on all sugary i beverages proposed by the British Medical So, (S1 + tax) = MSC Journal (BM), would mean a shift of the supply curve to (S2). This curve is steeper due to the fact that an ad valorem tax is a percentage of the price of the good, as oppose toa fixed amount per unit. Thus, as the price increases, so does the tax paid by the consumer per unit sold. If the government also increases the price, the tax would be even more effective. The fact that the government intervenes means that the equilibrium price and quantity D=Mpp changes from P* to Peand from Q* to Q.. ‘Spcan be seen as the marginal social cost and S; S;=MPC = Con Q a Quantty “as marginal private cost. By implementing the tax, the market failure is corrected. When a tax is implemented, itis usually for a number of reasons; the good or service being taxed is producing negative externalities which are "when the actions of consumers or producers give rise to negative side-effects on other people who are not part of the [transactions], and whose interests are not taken into consideration,"®. In this case, they are obesity and health problems for which society must pay in the form of healthcare. Or, the transaction between the producers and consumers is a common occurrence and its taxation would lead to the redistr of income; soda is widely consumed and taxing it would be lucrative. But, whenever a tax is implemented, both the consumer and producers are worse off. In the case of a soda tax, the hike would mean consumers pay more and buy less as well as producers selfing less at a lower price ~ meaning lower revenue for firms. Some firms however, are profiting from less consumption due to the overwhelming advertising capacity and influence. This outcome is exactly what the government wants because it still satisfies its needs: it gains large revenues from such a high tax, which it can use to pay for healthcare for citizens affected "Tragakes, Ellie (2012) Economics forthe 1B Diploma, Cambridge, Cambridge University Press, p72 and ‘Tragakes, Ellie (2008) Economies forthe 1B Diploma, Cambridge, Cambridge University Press, p.86. 2 Tragakes, Ellie (2009) Economics forthe 18 Diploma, Cambridge, Cambridge University Press, p62. » Tragakes, Ellie 2008) Economics forthe 1B Diploma, Cambridge, Cambridge University Press .160,May 2013 by excess soda consumption and it succeeds in reducing consumption and ensuring that prospective diabetics never come about because they are healthier to start with — curtailing negative externalities. As the National Obesity Forum (NOF) states, the effects on profit of a high tax level would incentivize manufacturers of sugary drinks to reformulate their products more healthily in the future ~ furthering the government's plan to achieve maximum benefit for society. In the short-term the tax will help to decrease consumption and improve public health. ‘The tax will also result in consumers scrutinizing the products they buy and eating/drinking more . Though, the effects of this tax are based on economic theory, in the real world, economic dealings are far more complex — incorporating many different factors and par Shit demand (MPB) due to an advertising campaign Thus, it is possible that an advertising campaign could be more effective in persuading consumers to reduce soda consumption and decrease demand from Dj to D; where that society is producing an optimum amount (Qos) $0 that externalities are negated. Furthermore, the price for ‘soda will decrease which will mean a drop in revenue for the soda companies. This fall in revenue could incentivize them to make their drinks healthier. Another way of limiting the dependency our society has on sugary drinks would simply be so enact laws not unlike those pertaining to tobacco and alcohol in which minors are prohibited from buying it. Tough, this, could bring about problems such as bootlegging and potential crime risks that accompany prohibition.May 2013 Bibliography Tragakes, Ellie (2009) Economics for the IB Diploma, Cambridge, Cambridge University Press Tragakes, Ellie (2012) Economics for the 1B Diploma, Cambridge, Cambridge University Press Blink, Jocelyn, and Dorton, lan. "Section | - Microeconomics." 1B Course Companion: Economies Second Edition Oxford University Press, USA, 2011.May 2013, IB Economics — Internal Assessment (Number 2) Coversheet School Code: ‘Name of Scho ‘Candidate name: Candidate number: ‘Teacher: Title of the article: _| “Inflation Slows in China as the Economy Continues to Weaken" ‘Source of the article: | The New York Times, US Edition httpy/wwew.nytimes.com/2012/06/09/bn as-the-economy-weakens.htm!?_r=1 Date the article was | 08/06/2012 published Date the commentary | 12/08/2012 was written Word count 74S (750 word maximum) Section of syllabus the article relates to (please tick the one coe : thatis most relevant) | [2] Seetion 2: Macroeconomics Section 1: Microeconomics Section 3: International economics Section 4: Development economicsMay 2013 Article: Inflation Slows in China as the Economy Continues to Weaken = HONG KONG — Inflation slowed sharply in China last month as companies cut prices to cope with faltering demand, as the Chinese economy appeared to slow further, data released on Saturday morning showed, Prices rose less quickly at the consumer level and actually fell at factory gates across the country. The fading of inflation gives Chinese officials considerable latitude to stimulate the economy, releasing brakes applied to bank loans, real estate investment and other sectors over the past two years when rising prices had seemed like a threat. China’s National Bureau of Statistics was preparing to release later on Saturday its May data for industrial production, retail sales and investment in fixed assets. Consumer prices were up 3 percent in May from a year earlier, below economists’ expectations of 3.2 percent and down from an annual increase of 3.4 percent in April. Producer prices tumbled for the third month in a row, down 1.4 percent from a year earlier, a faster fall than the 1.1 percent drop anticipated by economists. Yang Lijiang, a vegetable seller in a street market in Dongguan in southeastern China, said on Thursday morning that because ofa good harvest, most vegetables had stopped rising i while watercress prices had fallen 40 percent this spring. “There’s more supply this year,” she said.May 2013 China’s leaders already took strong action on Thursday evening to try to arrest the economy's decline, almost certainly after receiving advance word of the downbeat statistics disclosed on Saturday morning. The central bank cut interest rates for all borrowers by a quarter of a percentage point, and by nearly a full percentage point for some borrowers. ‘The central bank lowered the regulated one-year interest rate for commercial bank loans to ‘companies by a quarter of a percentage point, to 6.31 percent. The central bank separately announced that it was giving banks the discretion to offer an additional discount of roughly five- ceighths of a percentage point for especially creditworthy borrowers. ‘The popping of a real estate bubble, with prices declining as much as 20 percent in some cities. singe last August, has slowed the economy, as has faltering demand in debt-troubled Europe for China’s exports. On Friday, Greentown China Holdings Ltd. became the first of China’s leading property developers to resort to issue a large block of new shares at a discount to Hong Kong investors so as to raise desperately needed cash, The company said that it would raise the equivalent of $650 million by selling a 24.6 percent stake to Wharf (Holdings), and use the money to pay off some of its debts and provide working capital to keep operations going. The shares are to be sold at a discount of 2.8 percent to the closing price on Thursday; the ‘company’s shares have already slid almost a third since July. Real estate developers nationwide are running short on cash and have resorted to continuing construction work with a tiny crew on a single shift instead of three shifts around the clock. Chinese banks typically do not call in loans if any work at all is still being done on a site. In ‘Guangzhou and other cities, huge cranes move only once every couple hours to lift a single small load so as to suggest at least minimal activity is still under way, said a Guangzhou businessman who spoke on the condition of anonymity because of government scrutiny of the sector. Its rare for the National Bureau of Statistics to announce economic indicators on a Saturday morning, a step that gives financial markets an entire weekend to digest the results. But the Chinese agency also resorted to weekend data releases in late 2008 and early 2009, when ‘economic activity briefly plunged at the start of the global financial crisis. China's General Administration of Customs has tentatively scheduled for roughly noon on ‘Sunday in Beijing the release of export and import figures for May.May 2013, In this article by Keith Bradsher, less economic growth in China results in a decrease of inflation rates. Inflation is defined as, “a continuing increase in the general price level," '. This general price level applies to the entire economy — both goods and services. Inflation also takes place ‘over the long term ~ thus increases or decreases in the general price must be sustained and not only spikes that stabilize. Furthermore, the general price level is a cumulative calculation, in that it refers to an increase in mean prices. Bradsher asserts that the decrease in the rate of inflation is due to the fact that many Chinese ‘companies decreased prices in an attempt to boost demand, This boost is in aggregate demand as it refers to the entire economy. The strategy did not entirely curb inflation and did not attempt to, but rather meant that it slowed down significantly ~ though prices were still rising, For Chinese officials however, this is far less favorable, as the Chinese economy and Chinese workers would be very badly affected if economic growth suddenly slowed down; China is attempting to decrease its almost 8% growth rate gradually as opposed to suddenly because of these adverse effects on local jobs. @ Initial Inflation Rate () Reduced Inflation Rate LRAS Price Real GDP Real GDP For example, if we assume the increase from AD, to AD> in figure (a) is 20%, and AD, to AD> in figure (b) is 8%, there is still an increase in aggregate demand because the price is still above its itial stage at AD}. In terms of price level — which determines inflation rates, itis also : from Pl, to Pls. Again, the price increases, but not at the same rate. If companies had not cut prices and the inflation rate had remained unchanged, the initial inflation rate in figure (a) would have still been applicable. The theory is supported when consumer and producer prices increased and decreased at lower levels than expected. Though the article mentions that prices rose less quickly at the consumer level and fell for firms, inflation still occurs due to the fact that the consumers have more influence on the market's trend, " Tragakes, Elie (2009) Economics forthe 1B Diploma, Cambridge, Cambridge University Press, p.288.May 2013 ‘After the release of these statistics, the Chinese government took measures to increase aggregate demand and reestablish the initial inflation rate and price level. They did so by implementing monetary policies such as the decrease in interest rates in a hope of encouraging both firms and consumers to spend more money and thus increase economic activity. Itis worth noting that if too many firms had cut the price too much, the new aggregate demand curve would have been lower than the initial one and deflation would have occurred. ‘A benefit of this slow in the inflation rate is that people with fixed incomes that do not fluctuate based on purchasing power in the market (usually people who are not employed by the government or large firms) are better off to some extent. For example, due to the slow in inflation, peoples’ money goes farther, so someone wito was making 5000 Yuan ($800) would now be able to purchase more than if the inflation rate had not decreased, however they still lose purchasing power in the long run, just not as quickly. This also applies to those on pensions, as their pensions are fixed and do not change based on purchasing power. Whilst their employers will benefit because the real value of the money they pay is less. However, it is worth noting that for many in less economically developed countries such as China, pensions are a rare benefit and only come to those affiliated with the government or in diplomatic positions. The majority of Chinese retirees must rely upon their children and the kindness of others to support them later in life. In a country like China, the money illusion may come into play. The reason being is that not every run-of-the-mill Chinese citizen is a proficient economist and they may be under the delusion that having more in their pocket is better. This will be the case even if price levels are increasing at a higher rate than the nominal value of money. In order to retum to the original rate of inflation, China will need to increase aggregate demand again and thus price levels will increase to the previous level. This is a Keynesian method which involves government intervention. The Keynesian solution would involve more spending, stimulus, and less saving. The neoclassical view says that any intervention in the market is counterproductive.May 2013 Bibliography Tragakes, Ellie (2009) Economics for the IB Diploma, Cambridge, Cambridge University Press ‘Tragakes, Ellie (2012) Economics for the 1B Diploma, Cambridge, Cambridge University Press Blink, Jocelyn, and Dorton, fan. "Section 1 - Microeconomics." 1B Course Companion: Economics Second Edition Oxford University Press, USA, 2011.IB Economic: May 2013 Internal Assessment (Number 3) Coversheet ‘School Code: Name of School: Candidate name: Candidate number: ‘Teacher: Title of the article: | "U.S. Slaps High Tariffs on Chinese Solar Panels” Source of the article: | The New York Times, U.S. Edition ronment/us- slaps-tariffs-on-chinese-solar-panels.htm!?pagewanted=all&_r=0 Date the article was | 17/05/2012 published Date the commentary | 22/10/2012 a was written Word count 750 (750 word maximum) Section of syllabus Section 1: Microeconomics the article relates to (please tick the one that is most relevant) Section 2: Macroeconomics ‘/]_ Section 3: International economics Section 4: Development economicsMay 2013 Article: U.S. Slaps High Tariffs on Chinese Solar Panels By KEITH BRADSHER and DIANE CARDWELL Published: May 17, 2012 ‘The United States on Thursday announced the imposition of antidumping tariffs of more than 31 percent on solar panels from China. ‘The move by the Commerce Department is certain to infuriate Chinese officials already upset after recent bilateral frictions over China's human rights policies and its increasingly confrontational approach toward American allies like the Philippines and Japan. ‘The antidumping decision is among the biggest in American history, covering one of the largest, and fastest-growing categories of imports from China, the world’s largest exporter. ‘The department said the United States bought $3.1 billion worth of Chinese solar cells last year, giving China more than half the American market for the devices. Many solar panel installers in the United States have opposed tarifis on Chinese panels, contending that inexpensive imports have helped spur many homeowners and businesses to put solar panels on their rooftops. The new tariffs are likely to mean a substantial increase in the price of solar panels here. Chinese officials have been indignant at American criticism of their solar power industry, pointing out that the United States has urged China for years to embrace renewable energy as aMay 2013, way to reduce air pollution, combat climate change and limit the need for oil imports from politically volatile countries in the Mideast. Government support for solar energy is an important feature of China’s current Five-Year Plan, which runs through 2025, although Premier Wen Jiabao publicly cautioned in March that he was becoming concerned about overcapacity in the sector. Li Junfeng, an energy policy maker and regulator in the Chinese government who is also the president of the government-controlled Chinese Renewable Energy Industries Association, Tesponded angrily to the American decision. “This is really a surprise,” he said in a telephone interview. “It's really dangerous.” Mr. Li said that Chinese companies would “certainly” retaliate by filing a trade case at China's commerce inistry accusing big American chemical companies of dumping polysilicon, the main ingredient in solar panels, on the Chinese market. ‘The American decision was made by civil servants in a quasi-judicial process that is heavily insulated by law from political interference and does not represent a deliberate attempt by the Obama administration to confront China on trade policy. But that distinction has been largely Tost in China, where the solar panel issue has been one of many causes embraced online by the country’s vociferous ultranationalists, who put heavy pressure on Chinese officials to respond forcefilly to perceived snubs to China. Further complicating matters is a similar case against China and Vietnam over the manufacture of steel towers for wind turbines, charging that steep government subsidies were giving foreign companies an unfair advantage over American manufacturers. A preliminary ruling is due on May go in that case. ‘The solar tariffs, which are retroactive to 90 days before the decision is officially published in the next several days, are in addition to antisubsidy tarifis of 2.9 to 4.73 pereent that the department imposed in March. Solar World Industries America, which led the coalition of manufacturers that filed the solar dumping case, welcomed the department's ruling. The decision “is a very positive step in the process. It’s also in line with what we expected,” said Ben Santarris, a company spokesman. “We consider this a bellwether case. It underscores the importance of manufacturing to the U.S. economy.” Alan Price, a partner who heads the international trade practice at Wiley Rein, the law firm representing the United States companies in both the solar and wind cases, said that China posed a particular threat to America's developing green energy sector. “China’s method is straightforward: it sets forth industry-specific Five-Year Plans and then uses all forms of national and local subsidies and other governmental support to quickly transfer Jobs, supply chains, intellectual property and wealth, to the permanent detriment of U.S. and global manufacturers,” he said. “China’s ability to ramp up and overwhelm an industry is unique and particularly devastating with new and emerging technologies, where global competitors may be less established and can be knocked out more easily and quickly.” ‘Several large Chinese manufacturers expressed disappointment with the decision and said they would try to convince the Commerce Department that it was unjustified.May 2013 imiting trade in solar products will cause panel prices to increase, defeating America’s goal of driving down costs,” said Shawn Qu, chief executive of Canadian Solar, which makes panels in several Chinese plants and does brisk business in the United States. “Our first priority should be to support the health of the industry as a whole through the financing and installation of solar, which is the key driver to expanding jobs in the U.S. solar market.” According to a report from the Solar Foundation, an advocacy group, the solar industry ‘employed about 100,000 workers last year, up almost 7 percent from the year before. More than half of the jobs were in installation, with about a quarter in manufacturing. Isabelle Christensen, the marketing director of JinkoSolar, another Chinese manufacturer, said that her company had already established a factory in Canada and could probably shift production there if necessary. “We can begin ramping up our manufacturing facility in Canada fairly quickly,” she said, matching what the company produces in China for the American market in a matter of months. But while Chinese solar panel manufacturers may threaten to set up production elsewhere, they may face another obstacle: their bankers. State-owned banks have already lent heavily to the ‘Chinese manufacturers under pressure from the government, producing a capacity glut in China that has prompted factories to slash prices as they fight to maintain market share. A senior Chinese banker, who insisted on anonymity to avoid political repercussions, said that Chinese banks were not eager to lend heavily for another round of solar panel factory investments on the large scale needed to supply the American market. In the United States, solar panel trade cases have divided the industry in much the same way that automotive trade disputes in the 1980s split the American auto industry, when Detroit automakers seeking import restrictions were opposed by American car dealers who were making large profits from selling and servicing cars imported from Japan. Opponents of the tariffs say that the United States benefits from cheap Chinese production. ‘They point out that Chinese companies often turn to American companies to buy the factory equipment and polysilicon they need to make solar panels, and installers hire local American workers to set up and service rooftop systems. Like the antisubsidy tariffs, the antidumping decision on Thursday is preliminary. But if solar panel importers win a final review of both tariff decisions by the Commerce Department later this year, the preliminary tariffs could be reduced or even entirely refunded, although they also might be increased. ‘The Commerce Department calculated the 31 percent tariff by estimating Chinese manufacturers’ costs and then determining how far below cost the solar panels were being sold in the United States, But the department's methods for calculating costs are controversial for ‘countries that it designates as nonmarket economies, where the government plays such a large role in allocating land, credit and other resources that the true costs of any given produet may not be apparent. In Thursday's decision, the Commerce Department sided with SolarWorld in using solar manufacturing costs in Thailand as a proxy for costs in China. The Chinese industry had wanted touse India as a proxy instead.May 2013, In this article, the authors address the decision by the United States Commerce Department to impose a tariff, which is a tax on imported goods in a country (often serving as a form of protectionism for local producers or a source of income for governments)! of thirty-one percent ‘on imported Chinese-made solar panels. This decision was an attempt by the United States to decrease dumping ~ which is defined as the practice of selling a good on the international market at a price lower than that of its production’ — by the Chinese in the United States. ‘The article suggests that the tariff could be damaging to China's economy”. Due to the high price clasticity of demand — which is "a measure of the responsiveness of the quantity of a good demanded to changes in price,"* — of solar panels, their consumption will decrease when the tariff results in higher prices. Furthermore, the reduction in consumption of eco-friendly solar panels will likely mean an increase in the use of non-renewable energy sources. This will mean the advent of negative externalities, which are negative side-effects caused by producers or consumers which affect parties who are not taken into consideration®. Impacts of the solar panel tariff : In the Unites States, a more (domestic) economically developed country with a relatively high standard of living and labor unions, the cost of production for most goods will be higher than in a country such as China, with more relaxed world price + tariff labor laws and far lower wages, daa The USA will import most of its ‘world price & world supply solar panels, as it does not produce as much is demanded ~ Da Demand (domestic) producing only Qj, but ae oa demanding Qs. This excess Seer : demand is satisfied by imports of Chinese solar panels which provide Q:— Qs. Gomestic price imports with tariff Re ports without tariff Due to the fact that solar panels are being imported rather than manufactured in the USA, less ‘Americans have jobs making them. This is perhaps why the United States is imposing the tari to create more jobs at home and reduce dependency on imports. With the imposition of the tariff, the price of Chinese panels increases, meaning an increase in the supply of American panels. Because of this, at Py, +s, the United States supplies Qy— rather than Qj (without the tariff). Those who are better off as a result of the tariff are domestic producers in the USA and the Government ‘of the USA. This is because local producers sell more (previously Q1, now Qz) and they receive a higher price for what they sell; previously the world price (P,) but now the world price plus the ' Tragakes, Ellie (2009) Economics for the 18 Diploma, Cambridge, Cambridge University Pres, p.334, ° Tragakes, Ellie (2009) Economics for the IB Diploma, Cambridge, Cambridge University Press, p.S18, > As it sold $3.1 billion worth of solar cells to the United States in 2011. “ Tragakes, Ellie (2009) Economics for the 1B Diploma, Cambridge, Cambridge University Press. p.62. ° Tragakes, Ellie (2009) Economics for the 1B Diploma, Cambridge, Cambridge University Pres, p.160May 2013 tariff (Py +). The government gains from the tariff by acquiring tax revenue from the tax imposed on the imports (shaded yellow area). Those who are negatively affected are domestic consumers in the USA and foreign producers (Chinese solar pane! manufacturers). This is ‘because local consumers are now paying a higher price, the world price plus the tariff (Py +.) for a smaller quantity (Qs) and as a result of exporting a smaller quantity, (Q: — Qs, rather than Qy — Q.), China's export revenue will decrease. Another lass for the US will be the large loss of jobs of those who install solar panels because the majority of people in the solar industry in the US are in installation, as manufacturing is largely automated. American society in general will benefit less due to negative effects on consumers and inefficiency at home in producing solar panels. On a global scale, the reduction in consumption, heightened price and more inefficient production by the USA will mean a deadweight loss due to misallocation of resources and negative effects for all parties worldwide. ‘An argument could be made that manufacturing solar panels in the USA will mean tighter environmental restrictions on their production and thus reduce negative extemalities of ion. However, less consumption of solar panels in general will mean negative by way of more carbon consumption and thus emissions. ‘The article's says that the US is enacting the tariff because it suspects China of dumping, though it is possible that China simply produces the panels at a far lower opportunity cost, illustrated on the graph below. China may have specialized in the production of solar panels and US could do the same for another good — benefiting both countries from trade. Produc irve of Hypothetical ‘good USA os Solar Panels This case may be arbitrated by the World Trade Organization (WTO) as China is accusing American firms of dumping polysilicon on the Chinese market ~ giving mixed messages as to what the USA expects of China.May 2013, Bibliography Tragakes, Ellie (2009) Economics for the IB Diploma, Cambridge, Cambridge University Press ‘Tragakes, Ellie (2012) Economies for the 1B Diploma, Cambridge, Cambridge University Press