Table of Contents
- Article 1 - Gasoline tax in West Virginia rises by 4.5 cents
- Article 2 - Fed lowers Outlook of Growth in 2008
- Article 3 - The US to Impose Penalty Tariffs on China
- Article 4 - Ghana AIDS Commission Launches Condom Distribution Programs Ahead of African Cup of Nations
Gasoline tax in West Virginia rises by 4.5 cents
By Brett Dunlap, Special to The Times
PARKERSBURG — Driving a vehicle in West Virginia became more expensive this week as the state gas tax rose by 4.5 cents.
Drawn from average wholesale prices, the motor fuel tax, which went into effect Monday, increased from 6.5 cents to 11 cents per gallon. The rate change will increase the total per-gallon cost of state (31.50 cents) and federal taxes (18.40 cents) on gasoline to 49.9 cents.
The increase is one of several tax-related measures that went into effect with the start of the new year.
Revenue from the higher tax, an estimated $63 million in 2007, will benefit the State Road Fund, which Division of Highways officials say will need an additional $350 million a year to keep pace with needed maintenance and construction projects.
Randy Rapp, the owner of Rapp’s Chevron in Mineral Wells, said any increases in taxes always get passed along to the customer.“It seems like the consumers are getting hit everywhere these days,” he said.
Rapp said he believes many people will be willing to go to Belpre or Marietta to buy gasoline because the Ohio tax is less.
However, if the price of gasoline goes down, consumers will not quite feel the impact of the increase. Local retailers will not know the full impact of the tax for about a week when new shipments start cycling through.
Rapp said he understands the state needs money to fund needed road projects, but the cost always seems to fall on the customers.
Jim Arthur, the owner of Artie’s Mini Mart on Emerson Avenue, said they haven’t changed their prices as of Tuesday, saying they were working on getting rid of their existing inventory.
“We are still at our old price,” he said. Once the new tax is implemented, Arthur said he believes more people will be heading into Ohio to fill up their gas tanks.
“They will be buying their cigarettes here and going over into Ohio to buy their gasoline,” he said of Ohio’s higher cigarette tax. “People are going to be going back and forth.”
The tax is impacting many businesses owners in border counties, where customers could see as much as a 10 cent difference in price, said Marvin Gray, president of the West Virginia Gasoline Dealers Association.
“That is substantial,” he said. “It creates an unfair competitive difference in price.”The gas taxes in Ohio (28 cents), Maryland (23.5 cents), Virginia (19.2 cents) and Kentucky (18.5cents) are less than West Virginia’s, Gray said.
“People can bide their time until they can cross the state line and get their gas cheaper,” he said, adding Pennsylvania’s state gas tax (32.3 cents) was slightly higher than West Virginia’s.
Gray said the farther in-state people go, the less impact they see from the tax because they don’t have the option of going out of state.
However, local retailers are impacted because they will have to pay the tax on the gas they already have in stock as of Jan. 1.
Gray said he understands the roads need work and they need to be maintained, but the tax is putting many West Virginia retailers at a disadvantage.
“The state needs to find another way,” he said. “It is unfair to many businesses.
”The article highlights West Virginia’s plan to gain revenue from the higher tax on gasoline which is price inelastic in demand and should increase consumers’ expenditures. Price elasticity of demand (PED) is a measure of the responsiveness of the quantity demanded a good concerning a change in the price of the good. The major factors of PED are the availability of substances, the period involved and the proportion of income spent on the good. When PED < 1 then a good/service is price inelastic. Gasoline has an inelastic demand. There are few substitutes for gasoline in the short run. It means that the quantity of gasoline demanded does not decrease much when the price increases. See Figure 1.
Figure 1: West Virginia: Gasoline is price inelastic in demand
The price of gasoline increased from P1 to P2 and the quantity demanded should reduce from 0Q1 to 0Q2. Price fluctuation (yellow area) is large in comparison with the expected quantity decrease (green area). It means although sellers increase price consumers reduce their purchase very little.
Complementary goods/services are those which need one another. Revenue is a full amount of the tax. Gasoline and vehicles are complementary goods. The increase in gasoline prices should influence the market of cars. Consumers who see gasoline price increases will not buy large cars. See Figure 2.
Changes in the gasoline market would decrease the large car market. The prices would decrease from P1 to P2. It should not be a big price change however the demand curve would shift from D1 to D2. Total revenue is the total income of the firm. Sellers should reduce the supply of gasoline because of the higher prices. It is profitable to decrease the supply of inelastic gasoline. See Figure 3.
Supply is reduced from S1 to S2. However, it causes a bigger revenue gain (blue area) than a revenue loss (green area). Total revenue, A and B, increase. A specific or flat-rate tax is a specific amount of money put on a good/service. The incidence of tax shows how much pay the buyer or the seller or both. The government increased flat-rate tax 4.5 cents per–gallon. In the short run, the tax could be an effective source of revenue. See Figure 4.
Figure 4: West Virginia: Flat rate tax
The difference between P2 and P3 is 4.5 cents/per-gallon and it is an additional sum to a state tax of gasoline. Government revenue is equal to 31.5 x 0Q2. Earlier government gain was equal to 27 x 0Q1. The government is expected to get higher revenue. Although, the price from P0 to P3 seems to be the same as the full amount of the taxes but truly it is not. See Figure 5.
Figure 5: West Virginia: The full amount of taxes and buyer expenditures per-gallon
Price increases less than the total amount of taxes. Buyer’s expenditures reflect the amount of money that consumers pay for the full amount of taxes. The remaining small part of the full amount of tax curve is seller’ expenditures. See Figure 6.
Buyers pay almost the full amount of taxes; about 46.6 cents per gallon compared to only 3.3 cents per gallon by sellers. It should cause a loss of satisfaction to consumers.
Consumers have two choices. They can buy gasoline at a higher price in West Virginia or they can buy it in the nearest states where taxes are lower. The second choice will not impact consumers by taxes, but then retailers could not sell gasoline and gain profit and instead of this they “will have to pay the tax on the gas they already have in stock as of January 1”. (1) The amount of gas that is in stock is limited and then retailers will pay all taxes for government West Virginia will not maximize total revenue. All consumers may leave West Virginia to fill their tanks with cheaper gasoline; however, if most consumers buy gasoline in other states retailers and the later government will not gain.
PED of gasoline in the long run term is more elastic. Gasoline has substitutes such as diesel, gas, electricity, but they are not very close to gasoline. However, in the long run, term, people can start using substitutes for gasoline.
In conclusion, government expectations are not very calculated. Instead of gaining more, West Virginia can damage the local market of gasoline. People instead of paying high taxes can easily buy gasoline in states where it is not so expensive. In the long run term, PED for gasoline can become more price elastic because people can use substitutes. Therefore, West Virginia should find other solutions to gain bigger revenues because an increase in petrol excise could substantially damage its economy.
Fed lowers outlook for growth in 2008
BySue Kirchhoff, USA TODAY
WASHINGTON — On Tuesday, the Federal Reserve cut its forecast for growth in 2008, though it predicted the nation would avoid a recession and inflation would calm down. Central bank officials emphasized, however, that the housing downturn, credit crunch and possibility of slower consumer and business spending posed risks to the outlook.
The Fed also released minutes of its Oct. 31 meeting, indicating that its decision to cut its target for a key short-term interest rate a quarter-point was a "close call."
Fed officials voted for the rate cut to provide "additional insurance against an unexpectedly severe weakening in economic activity" and noted they could reverse the move if needed.
The Fed has cut the federal funds rate, which banks charge each other for overnight loans, from 5.25% to 4.5% since September to stabilize the economy. The rate is a benchmark for many consumer and business loans, so lowering it is meant to encourage borrowing and spending.
The updated assessment was the Fed's first quarterly report on inflation, unemployment, and growth, part of Chairman Ben Bernanke's plan to make the Fed more open. Along with the near-term analysis, the three-year forecast indicates Fed officials see a 1.6% to 1.9% inflation rate as a longer-term goal.
The forecast reiterated Bernanke's recent prediction that the economy will slow through the end of 2007. In 2008, the Fed expects growth of 1.8 forecasts in June. The range of growth forecasts among Fed regional bank presidents and Fed governors ranged as low as 1.6% and as high as 2.6%. Unemployment, 4.7% in October, is expected to rise to 4.8% to 4.9% next year, staying near
that range through 2010. Overall inflation will gradually moderate from about 3% this year to1.6% to 1.9% in 2010.
The forecast says Fed officials viewed growth risks as "weighted to the downside," noting that markets remain strained and that economic weakness could lead to further credit tightening, "which could, in turn, slow the economy further." The forecast appears to put more emphasis on the risk to growth than the Fed's statement after the Oct. 31 meeting, which called the risks of higher inflation and slower growth roughly balanced.
Brian Bethune of Global Insight says his firm expects the economy to grow about 2% in 2008, near the bottom of the Fed's range. Bethune says the Fed outlook looks "a little rich" and predicted the central bank would have to cut rates again.
Petras Petraitis Economics Commentary 2 Candidate No: 1111 Siauliai Saules gymnasium -3- School Code: 1111 Mark Zandi of Moody's Economy.com says while he expected the economy to skirt a downturn, "Right now, it feels more likely than not that the economy is devolving into recession."
This article highlights the US Central Bank’s use of monetary policy through interest rates to influence economic growth. Specifically to avoid stagflation.
Stagflation occurs when the economy experiences a decline in economic growth plus rising inflation.
The unemployment rate is the number of unemployed expressed as a percentage of the total labor force. US unemployment in October was 4.7%. The Federal Reserve expects that next year it should rise to 4.8-4.9%.1 Such a change would still lead to an economy with a full employment rate.
See Figure 1.
Figure 1: US: Full Employment Equilibrium
The US economy is operating at full capacity where SRAS = AD = LRAS, Real GDP is maximized and the Price level is at P1. However, unemployment is increasing which leads to a decrease in economic growth. Economic growth is an increase in a country’s real GDP per capita. US economic growth for 2008 is expected to be at 1.8% while in 2007 it is 2.5%.2 See Figure 2.
When PPF shifts to the left, from PPF1 to PPF2, potential output decreases.
Aggregate demand is the relationship between the aggregate quantity of goods and services demanded-or Real GDP- and the price level. AD =C+I+G+X-M. US economy is influenced by the surge in energy prices, a decrease in housing growth and lower level of job growth. It could cause weaker consumer spending which would reduce AD. See Figure 3.
Figure 3: US Decrease in Aggregate Demand
The AD curve shifts to the left from AD1 to AD2. The price level decreases from P1 to P2, good for price stability. A new external equilibrium is where SRAS=AD2. Real GDP decreases from 0QE to 0Q1. The reduction in GDP will increase unemployment. The decline in Real GDP will worsen the macroeconomic objectives of Economic Growth, Economic Development, and Full Employment. The risk of stagflation is very high due to cost-push inflation. In 2008 the US economy along with the rest of the world is facing increasing oil and food prices. For example, oil prices are surging to US$100/barrel. The SRAS will shift to the left. See Figure 3.
Figure 3: US Cost-Push Inflation
The SRAS curve shifts from SRAS1 to SRAS2. Real GDP decreases from 0Q1 to 0Q2.The Price Level increases from P1 to P2.
So, the main problems in the US are increased unemployment and inflation-stagflation. To solve these problems monetary or/and fiscal policies could be adopted.
Stagflation becomes a dilemma for monetary policy when policies usually used to increase economic growth will further increase inflation while policies used to reduce inflation will further the decline of an already-declining economy.
Monetary policy refers to changes in the money supply and interest rates to affect aggregate demand and aggregate supply. In the US, monetary policy is controlled by the Federal Reserve.
To increase AD, the Fed should increase the money supply which decreases interest rates. See Figure 5.
The Fed increase a money supply results in a shift in the money supply curve from MS1 to MS2. Interest rates fall from R1 to R2. The shift made by the Fed decreases borrowing costs to consumers. Besides, it gives an increase in the components C of AD.
By lowering interest rates, the cost for consumers to buy products on credit and businesses to borrow to expand production are reduced. While this can increase economic activity, it can also result in increased inflation.
The monetary mechanism to reduce inflation should raise interest rates, which would increase the cost for consumers to buy products on credit and businesses to borrow to expand production. While this could reduce inflation, it could also result in decreased economic activity.
Inflation is a sustained increase in the general price level. The prediction for 2010 is a decrease in the inflation rate in the range of 1.6% to 1.9%3 which is below the creeping inflation level.
See Figure 4.
US healthy creeping inflation rate is predicting to change into an unhealthy deflation rate. Deflation should hurt producers’ profits which would result in less investment by firms. Besides, assets would lose value. Banks would also be less willing to lend in periods of deflation. However, while the Fed is reducing interest rates inflation could not be reduced and achieve deflation.
In conclusion, since the US is going into recession in 2008 it needs to use policies that could reduce inflation and decrease unemployment because what happens in the US would affect all world economies. A very difficult economic balance.
The US to impose penalty tariffs on China
Posted: 31 March 2007 0147 hrs
WASHINGTON - The United States announced in an unprecedented decision Friday to impose penalty tariffs on China to offset government subsidies, as it grapples with a massive trade deficit with the world's most populous nation.
Commerce Secretary Carlos Gutierrez told a news conference that a "preliminary decision" had been made "to apply the US anti-subsidy law to imports from China."
This is the first time countervailing duties will be imposed on imports from so-called non- market economies such as China. The decision was based on a case brought by US firm NewPage Corp., which contended that Chinese high-gloss paper imports were fuelled by subsidies such as tax breaks, debt forgiveness, and low-cost loans that posed unfair competition to US-made paper.
The decision alters a 23-year-old US policy of not applying the countervailing duty law to non- market economy countries. "China's economy has developed to the point that we can add another trade remedy tool, such as the countervailing duty law," Gutierrez said. "The China of today is not the China of years ago."He said the Bush administration would continue to "vigorously" enforce US trade law concerning China.
The Commerce Department determined that Chinese producers and exporters of coated free sheet paper received "countervailable subsidies" of up to 20.35 percent.
Subsidies are financial assistance from foreign governments that benefit the production, manufacture, or export of goods.
By acting on NewPage's petition filed last October, the United States was "leveling the playing field for American manufacturers, workers, and farmers," Gutierrez said.
President George W. Bush has been under increasing pressure from the Democratic-controlled Congress to take bold steps to address the soaring US trade deficit with China, which ballooned to more than 200 billion dollars last year. Some of them charged that China's government subsidies are fuelling their exports. In February, the United States hauled China to the World Trade Organization over its "illegal" industrial subsidies in steel, paper, information technology, and other sectors.
It was the third time that the United States took China to the Geneva-based arbiter of global Petras Petraitis Economics Commentary 3 Candidate Number 1111 Siauliai sales gymnasium -3- School Code: 111 trade since Beijing joined the WTO in 2001.
Officials said the US government next could sue China at the WTO over rampant piracy of US goods while exerting continued pressure for reform to its tightly managed exchange rate.
Gutierrez stressed that the decision Friday against China did not signal any retreat from economic engagement with the rising Asian power.
"Rather it speaks to the growing strength of our commercial relationship and the fact that as economic partners, we must be above all fair," he said.
"We will continue to apply this principle to all our trading partners."
The Commerce Department said Washington's decision to apply the new duty on China might require a review of US anti-dumping methodology for China, particularly at the enterprise-specific level, and that it was considering this issue to overcome any possibility of "double counting."
Antidumping and countervailing duties offset distinct and different unfair trade practices.
Concurrent antidumping and countervailing duty petitions have been filed against coated free sheet paper from Indonesia and South Korea and may result in duties against those countries, the department said.
Economics Commentary: the US to impose penalty tariffs on China
This article highlights China’s unfair trade with the US, a major cause of the US rising trade deficit. Anti-dumping could help the US to solve this economic problem. Fairtrade is a trading partnership that seeks greater equity in international trade. A trade deficit is a negative value of the difference between the sum of visible export and the sum of visible imports. The US has a substantial and growing trade deficit with China.
See Table1 and Diagram1.
Table 1: China's Trade with the United States ($ billion)(1)
|US trade imbalance with China||-33.8||-39.5||-49.8||-56.9||-68.7||-83.7||-83.0||-103.1||-124.0||-162.0||-201.6||-232.5|
Total merchandise trade between China and the US increased to US$ 343 billion in 2006. However, US imports more than exports, causing an increasing annual trade deficit from US$ 33.8 billion in 1995 to US$ 232.5 billion in 2006. A subsidy is a financial grant from the government which acts as an incentive to producers to produce more and lower the costs of production. Chinese economic policy is to provide domestic producers with subsidies to lower the cost of production and increase supply.
See Diagram 2.
Diagram2: The effect of the subsidy in China
Diagram 2 reflects how a subsidy affects China’s market. Because of subsidy, China’s domestic suppliers can shift the supply curve to the right from S domestic to S domestic + subsidy. The yellow area is a subsidy, which reduces the price of goods from P1 to P2 and increases the domestic quantity of goods from 0 Q1 to 0Q2. Because of the lower prices and increased quantity of goods China imports less from foreign countries. China’s producers can sell goods on foreign markets such as the US at a price below the US domestic price level.
See Diagram 3.
Diagram3: Effect of China’s subsidies on exports to the US.
Price of China’s exports
China’s producers can produce goods at lower prices because of subsidy but US producers are not able to as their costs are higher. An amount from Q2 to QS is China’s surplus of production and a part of this production is exported to the US at a low price. World Trade Organization (WTO) is an organization whose main principles are non- discrimination, stabile trade environment, fair competition, development, and free trade through negotiation. US and China are in the WTO, which is focused on anti-dumping and reducing subsidies. China gains an unfair competitive advantage over other members. The problem can be resolved by anti-dumping or countervailing duties. An anti-dumping tariff is a tax on imported goods to reflect the “true” cost of production. This tariff will let US producers compete with China’s producers because tariffs on China’s production will increase the price of goods. See Diagram 4.
Diagram 4: The effects of a US tariff on China’s exports to the US.
Diagram 4 shows how tariffs could increase China’s selling prices. US tariffs will increase the prices of Chinese goods from P1 to P2 and decrease China’s revenue from the amount BAB to the amount A. area A is Chinese goods exports to the US. Area C is tax revenue to the US government and area D is a gain of US supplier surplus. Tariff lets US domestic firms sell more goods and increase prices. From the US perspective, anti-dumping or countervailing duties will offset the unfair trade practice. However, on the other hand, the US has advantages from importing goods from China. US imports are relatively cheaper and exports are dearer. Therefore, US import deflation by importing China’s goods. US consumers buy cheap China’s goods and it keeps inflation in check.
From China’s point of view: “ Dollar hegemony prevents the exporting nations from spending domestically the dollars they earn from the US merchandise trade deficit and forces them to finance the US capital account surplus.” (2) US trade deficit is funded by China’s capital account inflows and it let to US economy continue to grow. The US gets a cheap and stable source of funding its trade deficit. Therefore, the US economy is growing because of China’s imports in the US.
Chinese currency is massively undervalued and it should revalue it’s fixed currency because artificially pegged currency system is beginning to hurt the Chinese. China has an “unstable” amount of reserves of American bonds and debt. However, China can maintain its economic growth because of the export-led policy.
Whether the US deficit is primarily a result of China’s subsidies or is it also due to the artificially low Yuan to US $ exchange rate is debatable. Regardless, US consumers need to reduce their expenditure and the US deficit is likely to reduce. The US is an over-consuming country that needs to reduce consumption.
In conclusion, although China does not follow WTO principles and the US has the right to haul China and put anti-dumping tariffs, the US also has advantages from the merchandise deficit with China.
Ghana AIDS Commission Launches Condom-Distribution Program Ahead Of African Cup Of Nations
Main Category: HIV / AIDS
Also Included In Sexual Health / STDs
Article Date: 15 Jan 2008 - 5:00 PST
The Ghana AIDS Commission has launched a condom-distribution program ahead of the African Cup of Nations, which is scheduled for Jan. 20 to Feb. 10 in the country, Nigeria's Vanguard reports.
With support from the United Nations Fund for Population Activities, the commission will distribute 5,000 condoms at no cost to hotels in Ghana accommodating African Cup guests to help reduce the spread of HIV during the tournament. The campaign is urging both men and women to take advantage of the condoms. Sakyi Awuku Amoa, director-general of the commission, called on people to be mindful of HIV transmission during the tournament when more than one million people are expected to visit the country. Amoa also urged young people not to engage in commercial sex work with visitors.
According to Amoa, more than 300,000 HIV/AIDS cases were recorded in the country from 2005 to 2006, including 21,828 cases involving children ages 14 and younger. Most of the cases were transmitted sexually, through blood transfusions or by using unsterilized tools, the Vanguard reports. About 11,500 people living with HIV/AIDS in Ghana receive treatment through 84 treatment centers nationwide, while 21,000 people are on the treatment waiting list, according to the Vanguard (Ubani, Vanguard, 1/10).
This article highlights the negative effect of AIDS on the development of Human Capital in Ghana which results in worsening Economic Growth and Development. The HIV/AIDS epidemic is a very serious problem in Ghana. From 2005 to 2006 there were “more than 300,000”1 Ghanaians who were infected by HIV, the virus which causes AIDS. This included “21,828 children”1. However, the HIV/AIDS problem is not only in Ghana but also in other countries mainly in Africa. SeeTable 1.
Table1: AFRICA and HIV/AIDS epidemic.2
|Country||People living with HIV/AIDS||Adult (15-49)rate%||Women with HIV/AIDS||Children with HIV/AIDS||HIV/AIDS death||Orphans due to AIDS|
Table 1 shows that Ghana in comparison with Mozambique, Kenya or Nigeria is not a country that is the most harmed by the HIV/AIDS epidemic. Besides, women are the most infected by AIDS. African countries contain 24.5 million people who are living with HIV while in the rest of the world there are 9.8 million people who are living with HIV.
AIDS increases death rate and if a country is not able to provide its population with proper nutrition, health care, and medicine, the number of HIV victims will not decrease. As in Table 1 was shown a large number of people are living with AIDS. The HIV/AIDS epidemic causes a major health and development problem in Ghana. Economic development occurs in a country when there is an increase in Real GDP per capita plus an improvement in the standard of living. It is one of the five major macroeconomic objectives. Because of AIDS Ghana is operating below the PPF curve. See Figure 1.
Economic growth is an increase in a country’s real GDP per capita. It is one of the five major macroeconomic objectives. A key to economic growth is the quality of labor-human capital. Human capital is the investment in labor for the purpose to increase productivity, well-being and job satisfaction. The most harmful impact that has AIDS is on Human Capital.
HIV/AIDS epidemic affects the economy a lot. Mainly the loss of people will affect overall economic output. AIDS epidemic affects not only the quantity of human capital but also the quality. The result of the epidemic is that HIV victims cannot work and needs significant medical care. Labour force is less productive. Children very often do not get an education because they need to earn money or care for sick family members. When children are not able to go to school the households lose future earning potential. Also, virtually all of these people who are infected by HIV will die. Therefore, the role of health is very important for human capital to achieve economic stability.
The Human Development Index measures the average achievement of a country in three dimensions of human development-life expectancy at birth, adult literacy rate, and purchasing power through GDP per capita (PPP US$). According to the UN 2007/2008 Human Development Report, HDI for Ghana is 0,553; life expectancy at birth is 59,1 years, education enrolment is 50,7%, the adult literacy rate is 57.9% and GDP per capita 2.480$.4 HIV can be controlled because it is mainly transmitted through heterosexual contact. A huge number of people who are infected do not use condoms to protect themselves. Therefore, the Ghana AIDS Commission is going to “distribute 5,000 condoms at no cost to hotels in Ghana accommodating African Cup guests”. 5 A condom-distribution program should reduce the spread of HIV. This step is very simple, practical and is likely to be effective.
Other ways to be infected are “through blood transfusions or by using unsterilized tools”.5 To solve these problems Ghana needs funds for health care. Besides, the problem is that Ghana has limited resources for health. Nowadays not every Ghanaian can receive treatment when they need it. In the article, it is written that 21.000 people are waiting for treatment while only 11.500 are provided with it. The level of health care of a population has a major impact on the development of Human Capital.
Ghana needs investment in Human Capital. UNAIDS and WHO are working to reduce the AIDS epidemic in countries where AIDS is distributed. UNAIDS Secretariat and WHO have analyzed that in sub-Saharan Africa there is a decline in HIV prevalence, although “the actual number of people infected with HIV continues to grow because of population growth."6 Therefore, the progress occurs but the aim is still far.
In conclusion, the key to Ghana’s economic development is an improvement in Human capital. Short and long term solutions are required.