COLORADO STATE UNIVERSITY GLOBAL CAMPUS | Situational Analysis | Critical Thinking Mod. 3 | | Jennesee Forster | 7/24/2013 |

Select an article in a newspaper or magazine that discusses a government policy on goods or services. Summarize the article using at least three economic terms and theories covered in class. Identify the impact of the policy on Demand or Supply of the good(s) or service(s). Discuss the change(s).Draw a supply and demand graph to explain this change. Be sure to label your graph and clearly indicate the change of the curve. |

Situation Analysis

In the summer of 2011, Apple’s® App store had a grand total of 15 billion apps downloaded from their revolutionary App Store™, (Pope & Muller, para. 1, 2011). With the rapid increase in technology advancements, consumers are purchasing digital products without even thinking about it. Given the high amount of downloads, does this give each state the ability to tax they’re own amount to the purchase? Each state should not have the right to add their own tax price for the billions of downloads happening, instead there should be a single tax that encompasses all digital products.
In a recent article from Newspaper Association of America (NAA), journalists proposed creating a tax that would make it illegal for multiple states to tax the use of digital products. Stating “duplicative taxation of goods and services can be a huge drain on the economy, resulting in fewer purchases, when the economy is still struggling to recover from the recent downturn,” (Newspaper Association of America [NAA], para. 1, 2013). Due to the fact that digital products are not tangible, it is easy for states to find a worm hole to tax each purchase multiple times. For example, if a resident of Texas purchases an app while sitting in a North Dakota restaurant, and the company from which the consumer purchased the app has its location in Colorado, any of these states could claim taxing the purchase. Consumers think they are simply purchasing a single song, when in truth they could be paying multiple times depending on where it originated from. The more consumers are taxed on their purchases, the fewer the purchases they will make. Income elasticity of demand, as defined by N. Gregory Mankiw in Principles of Macroeconomics, is “a measure of how much the quantity demanded of a good responds to a change in consumers’ income,” (Mankiw, Chapter 5-Elasticity and its Application, 2012, pg. 97). Income elasticity demand relates to the fluctuation in digital product purchases in several ways. A major factor is when consumers only make a small income and are then taxed several times for a simple purchase that should only cost roughly a $1.50. Income may come into play since the price of the good relative to the persons income is an important factor in the price elasticity of demand, but then turns out costing closer to $3. The higher price will cause consumers to spend their money elsewhere, lowering the profits for the Apple® App Store™, changing the digital product market as we know it. In order for companies, such as Apple, to continue to have a profitable business a tax needs to be created and passed that helps the consumers to only pay for what they are purchasing. “The Digital Goods and Services Tax Fairness Act…would provide consumers with tax certainty when purchasing digital goods and provide consistent guidelines to the providers required to collect such taxes,” (NAA, Here is why legislation is needed section, fifth bullet point, 2013). This Tax Fairness Act will lessen tax incidence within the digital product market. When there is only one tax enforced on a digital product, consumers and suppliers will have fewer incidences on their businesses because consumers will be paying less and suppliers will not be losing income. With the projected increase in revenue for suppliers, there will be motivation for creating more apps and digital products for consumers, creating an increase