Economics for Sustainable Business Electronic Vehicles

Question: Discuss about the Economics for Sustainable Business for Electronic Vehicles. Answer: Introduction Electronic vehicles use electrical energy in place of fuels to provide the equivalent services as other automobiles that run on fuel. Electric cars are considered quite efficient in dealing with the rise in the cost of fuels along with the reduction in air pollution. The market for electric cars in Australia has not been developed enough to raise the demand among the customers and analyse the social benefits that could be redeemed from it. This essay aims at analysing various economical theories in accordance to theory of demand, supply, elasticity and government intervention. These economic theories would help in analysing the market for the electric cars in the country. The essay helps in analysing various factors that affect the demand and supply of the electric car market in Australia by taking price elasticity of demand for the cars into consideration, along with government taxation, the cost and the revenue structure of the dealers in the market and future prospects of growth of the referred market. The analysis is followed by a conclusion that would help in stating the overall analysis of the research that has been considered in the essay. Electric Car Market Price Elasticity of Demand According to Baumol Blinder (2015), the law of demand states that with the rise in the price of the product, there is a fall in the demand of the product fall in the price of the product; there is a rise in the demand for the product. Hence, it states that there is a negative relationship between the demand of the produce and it price. This results in a downward sloping demand curve. The rate at which the demand for the product changes with the change in its price is known as the price elasticity of demand (Frank, 2014). Commercial buyers have a relatively inelastic demand for electric cars. Hence, the buyers do not change their demand greater than the change in its price. Price elasticity of cars for individual buyers is relatively elastic in nature (Nicholson Snyder, 2014). It states that the proportional change in demand for electric cars is more than the change in the price of the product. This can be illustrated with the help of the following diagram. Figure 1: Price Elasticity of Demand (Source: As Created By Author) In figure 1, D is the downward sloping demand curve, which is elastic in nature. The demand curve is flatter, which states that the proportionate change in the demand for electric cars is greater than the proportionate change in price. Electric cars are costlier than the cars that run on fuels. Hence, with the rise in price of electric cars from P1 o P2, the corresponding quantity demanded of the product falls 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, 2016). LCT is paid by businesses that sell or import luxury cars (dealers), and by individuals who import luxury cars. Electronic cars are costly in nature, yet these cars are not bought to raise the status of the buyer. Electronic vehicles help in sustaining the negative impacts on air pollution of the particular country. Hence, the government of other countries uses a tax-offset incentive on the purchase of electronic cars. In Australia, the government does not provide such provisions. The incidence of tax on the buyers and sellers of electric vehicles could be analysed with the help of figure 2, below : Figure 2: Incidence of Tax (Source: As Created By Author) In figure 1, 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 blue shows the incidence of tax on the buyer, whereas, the green 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 Supply of a particular product is determined by various factors, among which cost of raw materials play a vital role for the producers. There is a negative relation between the cost of raw materials and the quantity supplied of a particular product (Rader, 2014). In order to build electric cars, the cost of production for the dealers is much higher than that of normal vehicles. This would state that the dealers would not be willing much to produce the product. 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. Hence, the dealers do not want to sell electric vehicles. Future Prospects of the Market Future prospects of a particular product depend upon the future demand and supply patterns of the particular product (Varian, 2014). Electric cars constitute various positive effects in relation to the environment. This shows that the product would be quite favourably affected with respect to demand of the product. Till now, the product has no close substitutes with respect to its environmental friendly attributes. Traditional cars are cost friendly on being compared to EVs . Hence, the effect of the substitutes would not be much for this market as it has some unique beneficial attributes. 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 (Bernanke, Antonovics Frank, 2015). Government would be helpful in raising the demand by removing the tax to be paid for purchasing an electric car. Conclusion and Recommendation Electronic vehicles are eco friendly automobiles that would help in achieving a safe and clean environment of the country, free from pollutants. The cost of electric cars is much greater than the traditional cars run on fuel. Hence, this has achieved a relatively elastic demand curve. The cost of production of these cars is much greater, which reduces the potential of the producer to produce such cars. Moreover, the government in Australia charges tax on the purchase of electric cars, unlike the government of other countries. Reduction in the cost of the cars is possible only when government provides subsidies to the producers of electric cars. This would reduce the price and raise the demand for such cars. Creating awareness among the customers for pertaining a healthy environment, free from air pollution for the society would help the people being citizens that are more responsible. This would help in maintaining a better future market for the electric cars in Australia. Reference Baumol, W. J., Blinder, A. S. (2015).Microeconomics: Principles and policy. Cengage Learning. Bernanke, B., Antonovics, K., Frank, R. (2015).Principles of macroeconomics. McGraw-Hill Higher Education. Frank, R. (2014).Microeconomics and behavior. McGraw-Hill Higher Education. Individual income tax rates. (2016). Ato.gov.au. Retrieved 28 December 2016, from https://www.ato.gov.au/rates/individual-income-tax-rates/ Nicholson, W., Snyder, C. M. (2014).Intermediate microeconomics and its application. Nelson Education. Rader, T. (2014).Theory of microeconomics. Academic Press. Varian, H. R. (2014).Intermediate Microeconomics: A Modern Approach: Ninth International Student Edition. WW Norton Company.