Economics for Sustainable Business

Question: Discuss about the Economics for Sustainable Business. Answer: Introduction Innovation and ideas generated in the automobile industries all over the world have come up with new automobiles and vehicles that are environmental friendly. One such innovation is the electronic vehicles that use the electrical energy in place of automotive fuels. Electronic vehicles are one of the most environmental friendly vehicles that reduce the burden of incurring the cost of automotive fuel, along with the provision of social benefit to the society. Various countries have undertaken the use of electronic vehicles quite seriously. Australia, on the other hand has not been able to effectively generate the demand for these vehicles among the consumers, which thereby provides lesser provisions for the economy to analyse the positive effects of such innovation. The following essay deals with consideration of various economical aspects and theories that would be applied with respect to the electronic vehicles in Australia. The theory of demand, supply, elasticity, taxation and government intervention would be considered in this study. This essay would be quite beneficial in analysing the factors that affect the demand and supply of the electronic vehicles in Australia, thereby, taking the elasticity of demand into consideration. Government taxation and its effect have been considered along with the cots and revenue structures of the dealers of automobiles in the country. The essay provides a scope for future amendments and recommendations t be implemented by such organizations that would help in the facilitation of the use of electronic vehicles in the economy. Price elasticity of demand Price elasticity of demand helps in analysing the effectiveness of the change in demand of a product with respect to change in its price. According to the law of demand, there is a negative relationship between the demand for the particular product and the price of the product (Browning Zupan, 2014). If the price of the product increases, its demand falls, whereas, if the price of the product falls, then the demand for the product increases. This negative relationship between the demand and price of the particular product is depicted with the help of negatively sloped demand curve. The slope of the demand curve analyses whether the particular product is more elastic or inelastic in nature. In the present case study, it is found that the cost of electronic vehicles is quite more than that of the automobiles that run on fuels. The demand of the consumer towards electronic cars is quite elastic in nature. It states that with a change in the price of the cars, there is a greater change in the quantity demanded for the consumers. This could be stated with the help of the following diagram. In the above figure, it could be seen that the demand curve of the consumers with regards to electronic vehicles in Australia is relatively elastic in nature. The slope of the curve is more than 1. This shows that when the price of the product changes from P1 to P2, there is a greater change in the fall of quantity demanded from Q1 to Q2. The fall in the demand of the product is greater than the rise in its price. Hence, it could be inferred that the individual demand for electric cars reduces to a certain degree. Effect of taxation Luxury car tax (LCT) is a tax on cars with a GST-inclusive value above the LCT threshold. LCT is imposed at the rate of33% on the amount above the luxury car threshold (Individual income tax rates 2017). The automobile producers and the imported luxury car brands or dealers pay luxury car tax. In spite of the electronic cars are quite costlier than those of the fuel run cars, yet, these cars are not purchased to raise the status of the people. They in fact help in raising the social benefit towards the environment. Hence, government of various countries do not impose tax on the purchase of vehicles run on electricity. Yet, this scenario is not relevant for the vehicle market of Australia. The incidence of tax in the country is both on the buyer and on the seller (Cooper John, 2013). The imposition of tax could be stated in the following figure: In figure 2, the demand curve faced by the individual buyers of electric cars is relatively elastic in nature. As price with tax with fixed at Pt, there is a fall in the quantity demanded, from Q to Qt. According to the diagram above, the area which is marked yellow shows the incidence of tax on the buyer, whereas, the red area shows the incidence of the tax on the producer. Hence, it can be easily seen that the incidence of tax is more on the producers concerning the tax on electric vehicles. Cost and revenue structure of the dealers In order to determine the quantity supplied for a particular product, various factors are taken into consideration. Among these factors, one of the most important factor that affects the supply of a particular output is its production cost, or the cost of raw materials and services to be used in the production (Perloff, 2016). As the cost of raw materials and services used for production increases, there is a negative effect on the production of the goods. In the case of electronic vehicles, the same theory is applied. The cost of manufacturing electronic cars is much higher than that of the normal cars. Hence, the dealers manufacture less number of those cars. Moreover, electronic cars are not brought frequently for services. Moreover, the servicing cost is quite low in comparison to the traditional petrol and diesel cars. This would instigate lesser chances of revenue in the long run, after the car has been bought by the individual (David, 2013). Hence, the dealers do not want to s ell electric vehicles. Hence, the dealers insist the consumers on purchasing the traditional cars more. Future prospects of the market The future prospects about the electronic vehicles are quite better for the environmental factors prevailing in the economy. Their positive effects about the reduction of air pollution are quite beneficial for developed countries, where the use of cars is quite large. In spite of being costlier than the traditional cars, yet, the product has no close substitutes with respect to its positive effects towards the society (Case, Fair Oster, 2014). With the awareness programs being generated in a country, there is a tendency of achieving a positive gain in the demand of EVs as the consumers are of the mentality of achieving safer environment. Government would be helpful in raising the demand by removing the tax to be paid for purchasing an electric car. Conclusion Eco friendly vehicles help in achieving a stable environment for the country. electronic vehicles provide an incentive of reducing the air pollution in the economy. Yet, the demand curve is relatively elastic in nature with respect to such vehicles. Moreover, the government of Australia imposed tax on the purchase of such cars, where both the dealer and the consumer incur the incidence of tax. The cost of producing such cars is quite less with lesser revenues from servicing the cars. Hence, the production of eco friendly cars run on electricity is comparatively lesser than that of the traditional cars. By keeping all the above stated factors in mind, it could be said that in order to improve the environmental conditions of the economy with respect to air pollution, it would be quit effective if the government does not impose any tax luxury car tax on these cars. This would raise the demand for the product and reduce the cost of production, thereby maintaining a better future market for the electric cars in Australia. Reference Browning, E. K., Zupan, M. A. (2014).Microeconomics: Theory and Applications. Wiley Global Education. Case, K. E., Fair, R. C., Oster, S. (2014).Principles of Microeconomics. Pearson Higher Ed. Cooper, R., John, A. A. (2013).Macroeconomics: Theory Through Applications. publisher not identified. David, W. (2013).Advanced Microeconomics: Theory, Applications and Tests. World Scientific. Individual income tax rates. (2017). Ato.gov.au. Retrieved 5 January 2017, from https://www.ato.gov.au/rates/individual-income-tax-rates/ Perloff, J. M. (2016).Microeconomics: theory and applications with calculus. Pearson.