A government reduces import taxes on specialist medical equipment used by domestic clinics. Which production cost is most directly affected? [1] Explain one...
Question 1 Report
A government reduces import taxes on specialist medical equipment used by domestic clinics. Which production cost is most directly affected? [1]
Explain one possible effect of the tax reduction on the price charged to patients. [1]
Answer Details
(a) The most directly affected cost is the cost of imported capital equipment, and hence the clinics’ production costs. [1] Specialist medical equipment is capital, because it is used to provide services over time.
(b) Lower production costs may allow clinics to reduce the prices charged to patients. [1] A lower import tax makes the equipment less expensive for clinics to obtain; whether they pass all of that saving on to patients is a business decision, so “may” is important.
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