ECO405 Week 10-GovtAssistance

ECO405
Week 10 Scenario Script: Economic Problems and Issues

Week 10 Scenario: Government-funded
Programs & Social Responsibility

Slide #

Slide Title

Slide Narration

Scene 1

Boss: Great news! I’ve learned of a government grant to
expand our operation in a low-income area. These grants are designed for any
business that is willing to open up in areas that have high unemployment
rates and low income. The idea is that they will increase employment through
providing opportunities to the local population.

Scene 2

Employee: The grant money from the
government will …

Scene 2.a

Response A

Employee:Increase our cost
structure, shifting our supply curve to the left.
Boss:
Incorrect. The grant in effect means the government is paying a
part of our production costs, so the amount we have to pay to produce a
quantity of goods has decreased.

Scene 2.b

Response B

Employee:Decrease our cost
structure, shifting our supply curve to the right.
Boss:
Correct. The free money
from the government means we can provide more quantity for the same price, or
charge a lower price for the same quantity.

Scene 2.c

Response C

Employee:Does not change our cost
structure, which in result will not change the supply curve.
Boss:
Incorrect. Our sources of
revenue do change the quantity and
price of goods that we can provide, which does shift our supply curve.

Scene 3

Boss:This grant seems to be a
benefit to both our company and the local community, but the story does not
end here.
The government gets its money from taxing the population
and businesses. To be able to give grants, they need to somehow find the
money. The results could be counter-effective on small and large scales
depending on how they obtain the funding.

Scene 4

Employee: I see your point. An increase
in taxes would …

Scene4.a

Response A

Employee:Increase the
disposable income for our community.

Boss: Incorrect: taxes take away
from income and this means less income will be realized.

Scene 4.b

Response B

Employee:Decrease the disposable
income for our community.
Boss: Correct: After the government deducts
taxes, we get disposable income. An increase in taxes will reduce the
disposable income.

Scene 5

Boss: How does that affect the
demand for our products and services?

Scene 6

Employee: An increase in income
taxes will …

Scene 6.a

Response A

Employee: Shift our demand curve to the left, causing
less quantity demanded.
Boss: Correct.
An increase in income taxes will decrease disposable income, which
will result in consumers demanding less quantity.

Scene 6.b

Response B

Employee: Shift our demand curve to the right,
causing more quantity demanded.
Boss: Incorrect. An increase in income taxes decreases
disposable income, which will result in consumers demanding less quantity.

Scene 6.c

Response C

Employee: Income taxes don’t affect the demand
for products and services.
Boss:Incorrect. I
would expect by now that you would understand that a change in cost affects
demand.

Scene 7

SHOW
GRAPH

Boss: This is our business’s supply
and demand chart. The supply curve S and the demand curve D show the pre-grant situation.

Scene 8

QUESTION
1

Boss: Show me how the grant, and
the tax increase to fund it, will change the supply and demand curves.

Scene 8.a

Response A

Employee: S & D [$.75 &
130k]
Boss: Incorrect. These curves show the situation before the grant and the tax hike to
fund it.

Scene 8.b

Response B

Employee:S & D1 [$.55 &
130k]
Boss: Incorrect. This shows the decrease in demand due to
the tax hike, but does not show our increased ability to supply due to the
government grant.

Scene 8.c

Response C

Employee:S1 & D [$.85 &
125k]
Boss: Incorrect. The government grant will lower our costs,
which will decrease prices for a given quantity. The S1 curve shows an increase in
costs.
Also, the increase in taxes to supply the grant will
decrease demand due to consumers’ lower disposable income.

Scene 8.d

Response D

Employee: S1 & D1 [$.75 &
120k]
Boss: Incorrect. This does show the decrease in demand due
to the tax increase, but shows an increase
in our supply costs. The government
grant money given to us will decrease
our costs.

Scene 8.e

Response E

Employee:S2 & D [$.65 &
150k]
Boss: Incorrect. This does show our decreased costs from the
government grant, but does not show the consumer’s decreased demand from the
tax increase.

Scene 8.f

Response F

Employee:S2 & D1 [$.55 &
130k]
Boss: Correct. These curves show our decrease in cost due
to the free government grant money, and also show the decreased consumer
demand due to the tax increase to fund the grant.

Scene 9

QUESTION
2

Boss: How does the price and quantity equilibrium
for the tax-hike grant situation compare with the pre-grant equilibrium?

Scene 9.a

Response A

Employee: Price higher, quantity higher
Boss: Incorrect.

Scene 9.b

Response B

Employee: Price higher, quantity same
Boss: Incorrect.

Scene 9.c

Response C

Employee: Price higher, quantity lower
Boss: Incorrect.

Scene 9.d

Response D

Employee: Price same, quantity higher
Boss: Incorrect.

Scene 9.e

Response E

Employee: Price same, quantity same
Boss: Incorrect.

Scene 9.f

Response F

Employee: Price same, quantity lower
Boss: Incorrect.

Scene 9.g

Response G

Employee: Price lower, quantity higher
Boss: Incorrect.

Scene 9.h

Response H

Employee: Price lower, quantity same
Boss: Correct.
Though the grant allows us to offer more product at a lower price, the
tax hike decreases demand and we end up selling the same amount as before.

Scene 9.i

Response I

Employee: Price lower, quantity lower
Boss: Incorrect.

Scene 10

QUESTION
3

Boss: Assume the government was
able to offer the grant, not by increasing taxes, but by reallocating funds
from other programs. How is that going to affect the demand for our business?

Scene 10.a

Response A

Employee: S & D [$.75 &
130k]
Boss:Incorrect. While using existing funds will bring consumer
demand back to where it originally existed, our ability to supply changes due
to the grant.

Scene 10.b

Response B

Employee:S & D1 [$.55 &
130k]
Boss: Incorrect. This shows the decreased demand from the tax
hike, which we are not considering currently.
It also does not show our ability to supply changing due to the grant.

Scene 10.c

Response C

Employee:S1 & D [$.85 &
125k]
Boss: Incorrect. This shows the correct demand, but S1 shows
an increase in our supply cost. The
government grant will decrease our costs.

Scene 10.e

Response D

Employee: S1 & D1 [$.75 &
120k]
Boss: Incorrect. The D1 curve shows demand under a tax hike,
which we are not considering right now.
S1 also shows an increase in our supply cost. Our costs will decrease because of the
grant.

Scene 10.f

Response E

Employee:S2 & D [$.65 &
150k]
Boss: Correct. This shows our decreased costs due to the
grant, plus the original demand free of an increased tax burden.
In this situation, we are able to offer a higher quantity
of goods than if the grant was funded with new taxes, and at a lower cost
than if the grant wasn’t available.

Scene 10.g

Response F

Employee:S2 & D1 [$.55 &
130k]
Boss: Incorrect. This shows the situation if the grant was
funded by new taxes, which reduces our supply costs, but also reduces demand.

Scene 11

QUESTION
4

Boss: If the grant is funded with existing tax dollars, how does our
output and price compare against a situation where the grant is funded by new taxes?

Scene 11.a

Response A

Employee: Price higher, quantity higher
Boss: Correct.
Consumers will demand more product, even at a higher price, if the
grant funding comes from existing money rather than imposing a new tax burden
on consumers.

Scene 11.b

Response B

Employee: Price higher, quantity same
Boss: Incorrect.

Scene 11.c

Response C

Employee: Price higher, quantity lower
Boss: Incorrect.

Scene 11.d

Response D

Employee: Price same, quantity higher
Boss: Incorrect.

Scene 11.e

Response E

Employee: Price same, quantity same
Boss: Incorrect.

Scene 11.f

Response F

Employee: Price same, quantity lower
Boss: Incorrect.

Scene 11.g

Response G

Employee: Price lower, quantity higher
Boss: Incorrect.

Scene 11.h

Response H

Employee: Price lower, quantity same
Boss: Incorrect.

Scene 11.i

Response I

Employee: Price lower, quantity lower
Boss: Incorrect.

Scene 12

QUESTION
5

Boss: How does the price and quantity equilibrium
if the grant is funded with existing tax dollars compare with the pre-grant
equilibrium?

Scene 12.a

Response A

Employee: Price higher, quantity higher
Boss: Incorrect.

Scene 12.b

Response B

Employee: Price higher, quantity same
Boss: Incorrect.

Scene 12.c

Response C

Employee: Price higher, quantity lower
Boss: Incorrect.

Scene 12.d

Response D

Employee: Price same, quantity higher
Boss: Incorrect.

Scene 12.e

Response E

Employee: Price same, quantity same
Boss: Incorrect.

Scene 12.f

Response F

Employee: Price same, quantity lower
Boss: Incorrect.

Scene 12.g

Response G

Employee: Price lower, quantity higher
Boss: Correct.
The grant allows us to offer lower prices, and if there is no tax hike
to reduce consumers’ disposable income, they will naturally purchase more product
at the lower price.

Scene 12.h

Response H

Employee: Price lower, quantity same
Boss: Incorrect.

Scene 12.i

Response I

Employee: Price lower, quantity lower
Boss: Incorrect.

Scene 13

Conclusion

Boss:Government assistance is
helpful, and in certain circumstances is even essential for the social
well-being of a community, but the money has to come from somewhere.
Just because the government offers assistance does not
mean that they have to raise taxes–they can reallocate existing tax monies
to where they feel there will be the most benefit. Of course, no one likes to have their
funding cut, but no one likes paying higher taxes either, so these decisions
can be difficult.

Scene 14

If private solutions can be found for these opportunities,
they can provide the social benefit the government is attempting to provide without
raising taxes or lowering existing benefits, and businesses will also likely make
a tidy profit.

Scene 15

FINAL COURSE CONCLUSION

Boss:For instance, I’ve made sure
to have an investment fund during my years running this print shop, and while
I have Social Security and Medicare to fall back on if I need to, I have a
sizable amount of money available to live off of in retirement.

Scene 16.a

SUCCESS

The time has come for me to step down, and you’ve proven
yourself capable of making the tough economic decisions to keep this business
running and deal with the various problems that come our way.
I’m happy to announce that I am making you Senior Manager
of all operations in the company. I look forward to seeing the additional
growth that will come under your leadership.
Congratulations!

Scene 16.b

FAILURE

The time has come for me to step down, but you’ve not been
able to readily answer my questions.
You’ll be keeping your current position as an Assistant Manager, but
I’m making someone else head of the company.
You’ll report to this person from now on. I wish you all the best and hope to see you
improve in the future.

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$.851. From the scenario, explain how government grants would influence the business’s operations. Be sure to emphasize the taxes, social benefit, and price level for both substitute goods and current products.2. Give your opinion on whether or not you support government-funded programs within the scope of taxation and government spending. Be sure to include the influence on the business operation, purchasing power, and income distribution in the economy.Use the link to answer 3-4 http://online.wsj.com/article/SB10001424052702304186404576390271495365028.html3. From the e-Activity, list (1) each change that you selected to fix social security and (2) your single overall deficit / surplus that was calculated as a result of those changes. Of your selected changes, identify the change that you believe will play the greatest role in fixing social security and explain why.4. Give your opinion on whether health care should be something that can be excluded from being consumed. Additionally, take a position on whether or not the government should be responsible for supplying health care in the economy. Provide a rationale for your answers.

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