Tag: demand

CAPITALISM

Capitalism is a political and economic system where a country’s trade and industry are controlled by private owners and not by the state. It is basically a system where there is private ownership of property. Capitalistic ownership means owners control the factors of production and derive their income from their ownership. That gives them the ability to operate their companies efficiently. It works for profit maximisation rather than public benefit. Capitalism needs a free market to work efficiently and succeed.   In a capitalist society, the distribution of goods and services is according to the laws of demand and supply. According to the law of demand, when the demand for a particular product increases then it also leads to an increase in its price. In a capitalist society there are a number of competitors. When these competitors realise that they can make a higher profit since the demand is high then, they increase production . The greater supply reduces prices to a level where only the best competitors remain.

EMERGENCE OF CAPITALISM

Capitalism emerged during the 16th century and expanded during the Industrial Revolution, pushed forward by colonialism, the nascent factory system, and the Atlantic Slave Trade. This system generated wealth and prestige for owners, but also exploited people who had very little or no power like the workers in the factory and people indigenous to Africa and the Americas. The expansion of Capitalism in America in the 19th-century relied on economic growth and was generated through the labour of enslaved people on land that were forcefully taken from Native Americans.

The United States is one example of capitalism. The other examples of capitalist countries are: Singapore, New Zealand, Australia, Switzerland, Ireland , United Kingdom, Canada, Denmark etc.

HOW CAPITALISM WORKS

In a capitalist society the owner of supply competes against each other to earn the highest profit by selling the goods at the highest possible price while keeping their costs as low as possible. Competition keeps prices moderate and production efficient, although it can also lead to worker exploitation and poor labour conditions. As there are a number of options for the consumer in the market due to competition then the consumer has a lot of choices.

Another component of capitalism is the free operation of the capital markets. The laws of supply and demand set fair prices for stocks, bonds, derivatives, currency, and commodities. Capital markets also  allow the companies to raise funds to expand.

According to the  economic theory Laissez- faire it argues that the government should take a hands-off approach to capitalism and should only intervene to maintain a level playing field. The government’s role is to protect the free market. It should prevent the unfair advantages obtained by monopolies or oligarchies. It ought to prevent the manipulation of information, making sure it is distributed equitably.

ADVANTAGES OF CAPITALISM

  • It creates healthy competition in the market.
  • Due to the number of companies and products in the market consumers have more choices.
  • Since the consumer’s demands are high and they will pay more for what they want, Capitalism results in the best products for the best prices.
  • It results in efficient production. In a capitalist system, firms have incentives to be productively efficient by cutting costs to improve competitiveness and productivity. If firms don’t remain productive and efficient they will run out of business.
  • Capitalism encourages trade between different nations and different people which is a mechanism for overcoming discrimination and bringing people together.
  • It raises the standard of living.
  • As the capitalist economy is dependent on the push factor of individuals, there is no limit to the level of wealth an individual can accumulate through progression within the economy.
  • Through capitalism, firms and companies are inclined to produce with greater efficiency, by cutting cost and improving efficiency. This is done with an aim to prevent losses in an industry where competition is high, bettering the economy as a whole.

DISADVANTAGES OF CAPITALISM

  • Private ownership of capital enables firms to gain a monopoly power in product and labour markets. Firms with monopoly power can exploit their position to charge higher prices.
  • Social benefit is ignored, as the owner cares about profit maximisation, public good is ignored, the poor people who cannot afford expensive products have no option.
  • A capitalist society argues it is good if people can earn more leading to income and wealth inequality. However, this ignores the diminishing marginal utility of wealth.
  • In a capitalist system where the means of production and distribution of goods and services are owned by just a few members of the society, the wealth of an entire nation could be controlled by just a few wealthy individuals and families and hence there is unequal distribution of wealth.
  • Due to the market being profit and demand driven, negative externalities such as pollution are generally ignored until they become a serious issue within the economy.
  • Socialists and communists are people who do not support capitalism. They say it hurts workers, because businesses make more money by selling things than they pay the workers who make the things. Business owners become rich while workers remain poor and exploited. 

Source: https://www.thebalance.com/capitalism-characteristics-examples

Council raises GST on low-cost footwear, garments to 12%

In its first physical meeting in two years, the GST Council on Friday effected several long-pending tweaks in tax rates including an increase in the GST levied on footwear costing less than ₹1,000 as well as readymade garments and fabrics to 12% from 5%.



The new rates on these products, a decision on which had been deferred by the Council over the past year owing to the pandemic’s impact on households, will come into effect from January 1, Finance Minister Nirmala Sitharaman said.

The Council approved a special composition scheme for brick kilns with a turnover threshold of ₹20 lakh, from April 1, 2022. Bricks would attract GST at the rate of 6% without input tax credits under the scheme, or 12% with input credits.

While this will please States like Uttar Pradesh that had sought a special scheme for brick kilns, a decision on extending such a scheme for other evasion-prone sectors like pan masala, gutkha and sand mining was put off.


The Council also decided to extend the concessional tax rates granted for COVID-19 medicines like Amphotericin B and Remdesivir till December 31, but similar sops offered by the Council at its last meeting in June for equipment like oxygen concentrators will expire on September 30.

The GST rate on seven more drugs useful for COVID-19 patients has been slashed till December 31 to 5% from 12%, including Itolizumab, Posaconazole and Favipiravir. The GST rate on Keytruda medicine for treatment of cancer has been reduced from 12% to 5%.

Life-saving drugs Zolgensma and Viltepso used in the treatment of spinal muscular atrophy, particularly for children, has been exempted from GST when imported for personal use. These medicines cost about ₹16 crore, Ms. Sitharaman said.

Food delivery tax shift:
The Council also decided to make food delivery apps like Swiggy and Zomato liable to collect and remit the taxes on food orders, as opposed to the current system where restaurants providing the food remit the tax.

Revenue Secretary Tarun Bajaj stressed this did not constitute a new or extra tax, just the tax that was payable by restaurants would now be paid by aggregators. Some restaurants were avoiding paying the GST even though it was billed to customers.

“The decision to make food aggregators pay tax on supplies made by restaurants from January 1, 2022, seems to have been done based on empirical data of under reporting by restaurants, despite having collected tax on supplies of food to customers,” said Mahesh Jaising, Partner, Deloitte India.

“The impact on the end consumer is expected to be neutral where the restaurant is a registered one. For those supplies from unregistered, there could be a 5% GST going forward,” he added.

Aircraft on lease:
The GST Council has exempted Integrated GST levied on import of aircraft on lease basis. This will help the aviation industry avoid double taxation, the Finance Minister said, and will also be granted for aircraft lessors who are located in Special Economic Zones.

Goods supplied at Indo-Bangladesh border haats have also been exempted from GST.

Demand and Supply

What is Demand?

Demand refers to the quantity of goods that consumers are willing to buy at given level of income during a given period of time. In order to understand the relationship of demand with different variables, let’s take a look at the factors that can influence demand.

Factors affecting demand

  1. Price of the Given Commodity: One of the most important factors affecting the demand of the commodity is its price. An inverse relationship exists between price and demand of a commodity. This means that as the price of a good increases its demand falls due to fall in the level of satisfaction of the consumer.
  2. Price of Related Goods: Demand of a product is also determined by the prices of other related products. Related products include Complementary and Substitute goods. Complementary good refers to goods that are usually bought together by consumers. For example, pencil and erasers. If the price of pencils goes up, the demand for erasers also decreases because they are used together (direct relationship). Substitute goods refer to goods that can replace each other. For example, Coke and Pepsi. If the price of Coke increases, the demand for Pepsi would increase. (inverse relationship)
  3. Income of the Consumer: Income of a consumer plays a major role in determining the demand of the product. Higher level income groups generally have higher demand than lower level income groups. If the income of a consumer increases, his demand and purchasing capacity also increases (direct relationship).
  4. Tastes and Preferences: Tastes and preferences of the consumer directly influence the demand for a commodity. They include changes in fashion, customs, habits, etc. An individual who prefers rice over bajra might not get affected by the increase in the price of rice where as a small increase in price of bajra will discourage them to buy bajra.
  5. Expectation of Change in the Price in Future: If the price of a certain commodity is expected to rise in future, then consumers will demand more of that product in the future than they normally would. There exists a direct relation between expectations of change in prices in future and its demand in current period of time.

What is Supply?

In economics, supply is the amount of a resource that firms, producers, laborers, providers of financial assets, or economic agents are willing and able to provide to the marketplace or directly to another agent in the marketplace.

Factors affecting Supply

  1. Price of the given Commodity:
    Price of a commodity is one of the most important factors which determine the supply of a commodity. Generally, price of the commodity and its supply are directly related, that is as the price of product increases, its supply will also increase and vice-versa. The price rise in the market promotes the producers to produce more, in order to earn more in the market.
  2. Prices of Other Goods:
    The quantity supplied of a commodity depends not only on its price, but also on the prices of other commodities. Increase in the prices of other goods makes them more profitable in comparison to the given commodity. As a result, the firm shifts its limited resources from production of the given commodity to production of other goods, reducing its supply (Inverse relationship).
  3. Prices of Factors of Production (inputs):
    If there is a rise in price of factors of production like:- land, labour, capital etc. the cost of production also increases as a result of which the product becomes less profitable and suppliers might reduce the production of that commodity and vice-versa (inverse relationship).

4. State of Technology: Advancements in technology plays a major role in determining the supply of the product. Introduction of new technology in the market reduces the cost of the product which increases the profit margin and induces the supplier to increase production of the product.

  1. Government Policy (Taxation/ Subsidy Policy):
    Increase in government taxes reduces the profit margin of product due to increase in the cost. This demotivates the supplier as a result of which he will reduce the production of that particular commodity (inverse relationship).