A couple of assignment questions:
Assume that the market for annual physical check-ups is in equilibrium, and not everyone gets an annual physical check-up.
What is the effect on price and quantity if a government regulation fixes prices at the current level and requires everyone to get an annual physical check-up?
and...
Explain why a tax increase on cigarettes in one state alone might not lead to a substantial price increase for all customers in that state.
1) Draw supply and demand graphs for physicals. If government mandates (and enforces) a law for everyone to have a physical, then the demand for physicals becomes highly inelastic (nearly vertical) at Qn where Qn=population. Without a price fix, what happens to price and quantity? Now then set, a price freeze at the initial price. How much are suppliers willing to provide at that price?
2) Do people in NY buy cigs in NJ?
To answer the first question about the effect of a government regulation on the market for annual physical check-ups, we need to consider the concept of price controls and the impact of mandatory requirements.
1. Price Effect: If the government fixes prices at the current level, it means that the price of annual physical check-ups cannot increase or decrease. This implies that the price will remain the same as it was in the equilibrium. However, it's crucial to note that equilibrium prices are determined based on the willingness of both buyers and sellers to transact at a particular price level.
2. Quantity Effect: By requiring everyone to get an annual physical check-up, the government is increasing the demand for these check-ups. As a result, the quantity demanded will increase, possibly shifting the demand curve to the right. With a fixed price, the quantity supplied will need to match the increased demand, leading to an increase in the quantity of annual physical check-ups provided.
Overall, the effect of this government regulation on the market for annual physical check-ups would be an increase in quantity demanded and quantity supplied, while the price remains fixed.
Moving on to the second question about the potential impact of a tax increase on cigarettes on prices for all customers in a single state, we need to consider the concept of consumer behavior and market competition.
1. Elasticity of Demand: The price increase resulting from a tax on cigarettes can depend on the elasticity of demand. If the demand for cigarettes is highly elastic (responsive to price changes), a tax increase may significantly reduce the quantity demanded. In this scenario, suppliers often take on part of the tax burden, leading to a relatively smaller price increase. Conversely, if the demand is inelastic (less responsive to price changes), consumers are likely to absorb most of the tax burden, resulting in a substantial price increase.
2. Market Competition: The degree of competition within the cigarette market also plays a significant role. If there is intense competition among cigarette suppliers in the state, they may absorb some of the tax increase by reducing their profit margins to attract customers. Consequently, the price increase experienced by customers may be lower compared to a market with less competition.
The combination of demand elasticity and market competition ultimately influences how much of the tax increase will be reflected in the price for customers in a single state.