Tuesday, May 5, 2020
Decision Making for the Solar Energy-Free Samples for Students
Questions: 1.Critically analyse the Impact of lowering the Goods and Services Tax (GST) levy on batteries from 28% to 5% on battery market in India, all else being equal. 2.Critically analyse the Impact of lowering the GST on batteries from 28% to 5% on Electric Vehicle (EV) market in India. 3.Critically analyse the Impact of lowering the GST on batteries from 28% to 5% on petrol vehicle market in India. 4.Does the Proposal of lowering GST on batteries by solar energy storage Manufacturers help the Governments push towards reaching a 100 per cent Electric Vehicle (EV) nation by 2030? Answers: Decision Making for the Solar Energy Storage Manufacturers 1.The current goods and service tax for batteries in India is very high at 28% (Mishra, 2017). This is an interpretation that the costs of battery production are very high. Tax is one of the most important cost of production that cannot be avoided. This is the reason why most of the times it distorts the level of production. The producing firms are requesting a reduction of this GST to 5% so that they will be able to produce efficiently at a lower cost. If the proposal is accepted and the GST is lowered to 5%, the price for batteries will fall; this is because, goods produced at a lower cost are sold at a lower price (Autocarindia.com, 2017). The lower price will lead to the demand for batteries rising to a higher level; there will be an increase in quantity of batteries produced since the lower cost will stimulate the producing companies to produce more output. On the other hand, the consumers increased demand will create a need for increased production and since these companies have that potential, quantity produced will rise. The consumer surplus will rise since they will be willing to pay more for the batteries but the price offered will be cut. The producer surplus will fall since they will be willing to sell at a higher price, but will be selling at a lower market price. Fig: Demand for batteries after GST is lowered At the GST of 28% on batteries, the price for the batteries was at level P and the quantity for batteries demanded was Q. The lowering of the GST to 5% will result in the price falling from P to P1. This price will stimulate additional demand; demand will increase from Q to Q1. The arrows show the price and the quantity movement; the movement is on opposite direction and thus the inverse demand curve. 2.Rechargeable batteries are a compliment to the production of electric vehicles (Economicpoint.com, 2016). Thus, the lowering of GST to 5% will increase the demand for electric vehicles. In economics, if the price of a compliment good falls, the demand for the other good goes up (Munson, 2014). Owing to the lower price of batteries which is an input to Electronic Vehicle (EV), the price for EV will also be lower. At a lower price, the demand for EV will rise. Since the input prices are lower, the short run profit will be higher (economic profits). In the long run the battery storage manufactures will be making only normal profits since competition will rise. Fig: Demand for complement goods At the GST of 28% on batteries, the price for the batteries was at level P and the quantity for electronic vehicles demanded was Q. The lowering of the GST to 5% will result in the price falling from P to P1. This will cause an increased demand for the complement good which is the electronic vehicles. Complement goods have an inverse demand curve and thats why the movement is on opposite directions (Hill, 2017). The lowering of price for one good consequently leads to a cut in the price for the other good making it more attractive to the consumers. The demand thus goes up. 3.As have been noted earlier, the lowering of GST to 5% will result in lower prices for electronic vehicles and thus their demand will increase. Since batteries are substitutes to petrol, a reduction in the price for batteries will increase demand for electronic vehicles but on the other hand, it results in a decrease in the demand for petrol vehicles (Pettinger, 2012). Fig: Demand for substitute goods At the GST of 28% on batteries, the price for the batteries was at level P and the quantity for petrol vehicles demanded was Q. The lowering of the GST to 5% will result in the price falling from P to P1. This will cause a decrease in demand for the substitute good which is the petrol vehicles. The demand curve for substitute goods is positively sloped and this is indicated by movement of price and the demand in the same direction (Aggarwal, 2011). Economically, when the price for a specific good falls, its demand rises; the increased demand causes the demand for the substitute good to be less attractive and thus demand for substitutes falls. 4.Yes. The proposal made by the solar energy storage manufactures to lower GST on batteries to 5% will definitely help the government in achieving its goal of reaching 100% level of electronic vehicle usage by 2030. We have seen that the cut in batteries GST will raise the demand for electronic vehicles by reducing the demand for petrol oil. Indiatimes.com (2017) noted that the price of batteries has been going up obstructing the governments vision. The Minister of state Power, Coal, New Renewable Energy should therefore consider intervention by lowering the GST on batteries for the solar energy storage manufactures. However, it is not clear whether this will actually be the case because we know that the increased demand for electronic vehicles will result in increased price. And also we know that the reduced demand for petrol will results in a reduced petrol price due to oversupply. However irrespective of these controversies, the minister should consider lowering the GST to 5% as it will in fact raise the demand for electronic vehicles. References Aggarwal, K. (2011). CPT General Economics. S.l.: S Chand CO LTD. Autocarindia.com. (2017). EV industry wants lowering of 28% GST on batteries. Autocar India. Retrieved 28 August 2017, from https://www.autocarindia.com/car-news/ev-industry-wants-lowering-of-28-gst-on-batteries-405298. Economicpoint.com. (2016). Complementary Goods. Economicpoint.com. Retrieved 28 August 2017, from https://economicpoint.com/complementary-goods. Hill, A. (2017). Complementary Goods in Economics: Definition Examples. Study.com. Retrieved 28 August 2017, from https://study.com/academy/lesson/complementary-goods-in-economics-definition-examples.html. Indiatimes.com. (2017). Battery makers Amara Raja and Exide Industries increase prices, gain over 1%. The Economic Times. Retrieved 28 August 2017, from https://economictimes.indiatimes.com/markets/stocks/news/battery-makers-amara-raja-and-exide-industries-increase-prices-gain-over-1/articleshow/59440803.cms. Mishra, T. (2017). Solar energy storage manufacturers want lower GST levy on batteries. Econogist.com. Retrieved 28 August 2017, from https://www.thehindubusinessline.com/economy/policy/solar-energy-battery-gst/article9758357.ece. Munson, I. (2014). Economics Explained: Complements, Substitutes, and Elasticity of Demand. Retrieved 28 August 2017, from https://www.econogist.com/home/complements-and-substitutes. Pettinger, T. (2012). Complementary Goods. Economicshelp.org. Retrieved 28 August 2017, from https://www.economicshelp.org/blog/glossary/complementary-goods/.