Learning Objectives Assessed: 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13
Due Date: 17 Oct 14 12:00 noon
Choose a market among competitive, monopoly, monopolistic competition, and oligopoly and find a business that operates in such market environment. Write a 1,000 word essay using the tools of economic analysis to describe AND relevant diagrams to illustrate how current or upcoming domestic and/or international government policies could affect the business and its competitiveness.
Markets in action
Describe briefly the nature and characteristics of the chosen business.
In recent decades, environment problems and resource shortage have negatively impacted on our life dramatically. Governments around the world are trying to solve those issues.
Promoting new energy cars has been considered an effective method to reduce pollution and save resource. Many countries have focused on this industry and introduced policies to promote the development and production of these cars. According to data reports from University of California, Davis. 500,000 new energy cars have been sold all over the word from 2010 to the end of 2013, with United States being the largest consumption country. Since the beginning of 2010 statistics, the United States has accounted for about 45% of total global sales of electric vehicles. Chinese government started the 863 EV project to support the development of this industry by ways of government allowance and tax exemption. Data released by China Association of Automobile Manufactures indicate that in the first half of 2014, the sales of new energy cars increased 2.2 times comparing to the same period in 2013.
Why and how government could influence the market price for a product impacting on suppliers and consumers?
Government policies are a visible hand in the economy. Government can influence the price of particular products immediately by adjusting tax or allowance. For the new energy car market, demand for those cars is sensitive to price change. If the prices of those cars are same or higher comparing to normal cars, consumer are unlikely to purchase a new energy car because of the lack of supporting facilities such as charge station and the change of consumption habit. However the popularisation of new energy cars is a global trend and those cars are very economical. Therefore with a moderate decrease in price, more consumers will choose a new energy car.
To a large extend the market of new energy car is influenced by government policies. For instance, from the end of 2013 Chinese government has taken three initiatives to boost this market. Firstly, the central government pays allowance depending on the car’s performance. If the battery life of the car lasts from 80 to 150 kilometers after charge, the consumer will get $6,000 in allowance. If it lasts from 151 to 250 kilometers the allowance is $9,000 and if it lasts more than 250 kilometers the allowance is $10,000. Secondly, consumers are exempted from purchase tax, equivalent to 10% of car price. Thirdly, local governments also provide allowances to promote sales. For example the ShangHai government offers $7,000 allowance for pure electric car and $6,500 for hybrid car. These initiatives effectively reduce the price of most new energy cars by around $6,000 to $9,000. As the price elasticity of demand for those cars is large, the demand increases significantly with price decrease.
(Data from China Association of Automobile Manufactures)
With the implementation of government policy from the end of 2013, the sales of new energy cars in the first half of 2014 is 20,470 more than the 2013 full year’s sales of 17,600. In the past two and half years, sales increased…