Applying Microeconomic Theory to Real World - Annotated Bibliography Example

Applying Microeconomic Theory to Real World Economic Phenomena Using UAE Articles s) Dubai, UAE of Wollongong in Dubai, [Class Title] [Academic Year and Semester] Applying Microeconomic Theory to Real World Economic Phenomena Using UAE Articles Names Table of Contents Review of first article 3 Introduction 4 Analysis 4 Interpretation 6 Summary/Conclusion 7 Bibliography 8 Review of second article 9 Introduction 10 Analysis 11 Interpretation 12 Summary/Conclusion 12 Bibliography 13 Applying Microeconomic Theory to Real World Economic Phenomena Using UAE Articles Review of first article Abstract In Abu Dhabi, electricity and water tariffs for both the expatriates and Emirates are expected to be revised with effect from 1st Jan 2014. This will see the government minimize on the subsidies it offers for the provision of water and electricity. The move by governments to stop subsidizing some utilities means that the funds that will accrue from such endevours will be used for other development and investment that will lead to growth of the economy. Despite the fact that this kind of a move has some negative impact, the long run effect has more benefits than the short run effect. This is a result of the opposition such a move will face and the negative impact it will have on the individuals affected. This is because the affected parties will have to bear more costs to have provision for such utilities that were subsidized by the government. Introduction The article by Binsal Abdul (2014), outlines that the government had heavily subsidized utility tariffs in Abu Dhabi. Electricity subsidy for example in residential areas ranged between 55 to 90 percent and water ranged between 79 to 100 percent (Urban planning council). It is expected that increase in water tariffs will go up by 170 percent from the current Dh 2.2 per a thousand liters to around Dh 5.95 per a thousand liters. The cut on subsidizing water and energy in Abu Dhabi is expected to save around 14 to 17 percent of energy and water. This saving will lead to these amenities directed to other economies like irrigation and industries to increase production capacity. It is also expected to cut on the losses on wastage and make people more responsible in the use of natural and ma made resources. Binsal Abdul (2014), suggests that transfers and subsidies account for around 20% of the governments annual expenditure. This is equivalent to around Dh 47.8 billion in this year. This is per the data retrived from the Abu Dhabi finance department. There is therefore a greater need by the government to cut on the unnecessary expenditures. This is possible through the cutting on the subsidies on water and electricity utilities. This will not only make people responsible but it will also lead to more investment on development projects from the saved funds. In this article “Abu Dhabi revises water and electricity tariff” there will be use of regression results for analysing the effect of cutting on subsidizing on water and electricity on the economic growth. Analysis The impacting of cutting on the subsidies on electricity and water tariffs will result in the hiking of prices for the utilities which will have a negative short term effect but in the long run have a permanent positive impact on the growth of the economy. This is shown by the way increase in the prices of utilities lead to growth in the general economy mostly because of the spill over effects. This is well shown by table 1 below and the table 2 on the regression results below. Table 1: GROWTH RATES OF G.D.P. and electricity and water price growth rates (%), 2001-2013 Year Economic annual growth rate (%) Electricity and water prices annual growth rate (%) 2013 8.1 5.4 2012 7.2 15.2 2011 21.5 11.8 2010 12.8 3.0 2009 19.6 13.7 2008 22.3 16.1 2007 16.1 1.3 2006 23.0 4.3 2005 22.2 8.8 2004 18.9 12.3 2003 13.2 22.0 2002 6.3 9.8 Table 2: Regression results showing the effect of water and electricity prices on the GDP growth rate From the above Table 2, we can observe that there are 12 observations that represent the individual economic growth rate and water and electricity price growth rates for the twelve years. It can also be observed that the R-squared is equal to 0.177 and adjusted R-squared is equal to 0.095. It can be observed that the coefficient for the intercept that represents economic growth rate is 0.307 and the coefficient for the independent variable that represent the water and electricity price rates is at 0.78. Interpretation The regression results show that there is a significant relationship between economic growth and the rate of prices for both water and electricity. The table on regression shows that 30% of the economic growth rate is accounted for by independent factors. Water and electricity price increases as per the regression table have a 78% influence on the economic growth rate while 22% is accounted for by other factors. The value of the p-value which is 0.97 for the intercept and 0.17 for the independent variable, suggest that there is a strong relationship between economic growth rate and increase in prices of water and electricity. Therefore, electricity and water price rates influence the rate at which the economic grows. Summary/Conclusion It will be observed that when water and electricity subsidies cut will have a positive impact on the economy. This is because there prices will increase and hence the profits so accrued will be channelled to investment activities. Moreover, there will be a cut on the wastage that the production industries for water and electricity experience. Consumers will be more careful when using these resources hence efficient use. The saved resources from wastage will be put into good use like, irrigation and more production in the industries. This will eventually accelerate economic growth in the country. Therefore, the government’s move to cut on the subsidies on the mentioned utilities is a welcomed one for economic growth in the country. Bibliography El Din, A., Aziz, S. and Makkawi, B. (1994). Electricity and water production in the Emirate of Abu Dhabi and its impact on the environment. Desalination, 97(1-3), pp.373-388. Gulfnews.com, (2014). Abu Dhabi revises water and electricity tariff. [online] Available at: http://gulfnews.com/news/gulf/uae/government/abu-dhabi-revises-water-and-electricity-tariff-1.1411802. Review of second article Abstract Governments use tax procedures in order to raise revenues to pay its workers and initiate investment projects in the country. It is through tax reforms that the government is able to increase its revenue base. The tax reform is either through raising the tax bracket on certain commodities or through taxation on new commodities that were not taxed before. When a government raises the tax on cigar rates that are considered to have harmful effects on the users, it reduces the spillover effects that cigars create. This results to lesser consumers of the cigars because they cost more and again the extra funds raised are channeled to investment projects leading to economic growth. Introduction The article by Asman Ali (2012), suggests that each year that authorities in the health sector spend more money in the treatment of cardiovascular diseases that are as a result of smoking, physical inactivity, hypertension, and diabetes. Asman Ali (2012), also points out that cardiovascular disease is one of the leading killers in the Emirates. The government’s imposition of 200 percent tax on cigarettes will have a positive effect to both the economy and the environment. This move will lead to economic growth and reduction in environmental pollution that causes global warming effects in the globe. Dubai tax was imposed on august 2012 as per Asman Ali (2012), and was greatly supported by the Dubai municipality. This was a great move to raise more revenue for development of the economy as it also led to cut on costs in the health sector. It is evident from studies that the level of heart diseases greatly differs from country to country. In Dubai the rate of heart attack disease is more than the rate of stroke effects. This is due to the high rate of diabetes disease in Dubai (Asman Ali, 2012). This suggests that there is a necessity to regulate on the use of tobacco which is a greater contributor in heart attack diseases. The regulation is best effected through an increase in the tax rate on tobacco sales and itsproduction. Through this it will lead to a reduction in cardiovascular diseases that lead to deaths from heart attack. The funds so raised can be used to sensitize the public on the dangers of cigaratte smoking. Thus the government will be able to cut on the costs it incurs in the health sector in buying of medical facilities and provision of drugs to the victims of cigaratte smoking impact. The funds so raised can also be channeled to other development projcets for the economy. This will lead to more jobs, improved production and provision of services that will lead to economic growth in the country. For purpose of analysis, there will be observations in the trends of graphs that will represent the impact of an increase in corporate tax on the growth of the gross domestic product. Analysis The graph 1 and 2 below will show the impact of an increase in taxation on the economy. The trend of the graph 1 on GDP growth rate has upward and downward trend in some years showing that the economic growth which is measured by Gross domestic product was not steady. In 2010 it went to negative 4.8 percent. The highest GDP rates were in the year 2005 and 2007 at 9.6 and 9.8 percent respectively. From graph 2 on the United Arab Emirates corporate tax rate, it is evident that it is only in 2004 when the rate was at the lowest; at 40%. The other years had a steady tax rate that averaged 55% of GDP annually. Graph 1: United Arab Emirates GDo growth rate Graph 2: United Arab Emirates corporate tax rate Interpretation It can be observed that the growth in tax rate has an insignificant effect on the growth rate of the GDP. This shows that despite there being a growth on the tax rate, the growth on the GDP is determined mostly by other factors. Summary/Conclusion From the analysis it is evident that although the Dubai authorities increased the tax on cigarattes that was incorporated in the corporate taxes, there was insignificant impact on the economic growth in the country. This shows that the effects of the taxation were felt by other players especially the health sector but no on economic growth. Bibliography Emery, S. (2002). Was there significant tax evasion after the 1999 50 cent per pack cigarette tax increase in California?. Tobacco Control, 11(2), pp.130-134. Khaleejtimes.com, (2014). Dubai to slap 200 per cent tax on cigarettes. 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