Grade 9B_IGCSE
" Sometimes governments do not provide goods and services
but they still influence the
activities of private firms. Analyse how they might do this."
Time Duration for submitting the Article is
Aug 5th to August 11th, 2013
Write your answer here in 500 Words.
"Marks allocation will be in accordance to the Rubrics"
For rubrics please check in
'Food for thought column on my bog under title Rubrics'
The government gets influences the activities of private firms by being authorised to taxes, subsidies and rules and regulations of the country. Firstly, we need to know the meaning and details of these influences. Taxes are split into two: direct and indirect taxes. Direct taxes are taxation on income and wealth, and are imposed on people (income tax, corporation tax, inheritance tax, capital gains tax), while indirect taxes are taxation on spending, and are imposed on goods and services (VAT, excise duties, import taxes). Subsidies are a form of financial assistance paid by the government to a business, and rules and regulations are used to protect the interest of employees, such as making law regulations for work safety, etc.
ReplyDeleteTaxes are used to protect the local industries by making prices on imports higher from taxes the government implies to them and making taxes on goods and services produced by the local industry lower, so the demand for the local goods and services will increase, boosting the local economy. Another objective of taxes are that they can reduce the use and consumption of de-merit goods by requiring companies who produce these goods to pay higher taxes on the goods, making the goods more expensive to consumers, thus reducing the consumption of these de-merit goods. Also, taxes are utilised to finance government expenditure, which is used to satisfy the country’s needs and wants, like free education, healthcare, etc. An example is, Heineken beer is being sold in Indonesia for Rp 12.000 because taxes are added to the price, and Bintang beer, which is a domestic-owned beer company, is sold in Indonesia for Rp 9.000. Instead of buying Heineken beer, people will rather buy Bintang beer, since it’s cheaper, boosting the demand for Bintang beer and expanding it.
Subsidies are used to lower the cost of necessary goods that are needed in a country. This is used to supply merit goods for the whole country and making the more affordable to the people. It is also used to help the domestic market expand and become more competitive, since prices of the imported goods become more expensive. For example, Country X does not grow sugarcane, and so the supply of sugar is not high, so they have to import the sugar. Because of this, the price of sugar becomes expensive, but since the government believes that every citizen needs sugar, they subsidise the price of sugar, making it cheaper and more affordable.
Rules and regulations are used for workers so that they will be protected towards the firms they work in, such as having fair wages and regulations from companies to provide safety equipment, which is very important for the workers. For example, workers in a plastic company is not given safety goggles or gloves. This can lead to the company paying fines for breaking the rules and regulations given by the government, making the plastic company buy the safety equipments for the workers.
In conclusion, taxes, subsidies and rules and regulations are needed to control the private firms from these influences. Because of this, the government does not need to provide goods and services yet they can still control these firms.
Government don’t provide goods and services but government can control the firms and the company that provide good and services by giving them indirect tax, direct tax . Direct tax is Income Tax Department administers various direct taxes, which have different rates Pay As You Earn (PAYE), corporation tax, withholding tax and advance tax. Indirect tax is a tax collected by an intermediary from the person who bears the ultimate economic burden of the tax such as the consumer. Example of indirect tax is sales tax, a specific tax; value added tax (VAT), or goods and services tax (GST).Tax can control the consumer that will buy that goods or services because if the tax is high the price of the goods or services will automatically rise and if the price rise there will be lesser people that will buy does goods or services. For example the firm make the goods and sell it to the consumer with Rp1000 and the tax from the government is 20% of it so Rp1000 X 20%= Rp200 so the consumer must pay it Rp1200.Government can also make the goods or services have more consumers by giving the firms or the company subsidies that will decrease the cost of production so the company can decrease the price to the consumer. If the price lower consumer will rise for example the firm make a one goods costing Rp2600 and the government give the subsidies Rp600 and the firm want the profit is Rp300. Rp2600+Rp300-Rp600 = Rp2300 that should be paid by consumer after it subsidies by the government Rp2600+Rp300= Rp2900 that should be paid by the consumer before it subsidies by the government this how government control the demand. There is other way to decrease the demand by increasing the minimum wages that the company or firm needs to pay. By increasing the wages the company operating cost will increase so the company or the firm need to increase the price to stable the amount of profit. For example government set the minimum wages Rp30.000 the company total operation cost is Rp10.000 and take a profit Rp20.000 and a month later it the minimum wages increase Rp10.000 Rp30.000+Rp20.000=Rp50.000 before it increase Rp30.000+Rp20.000+Rp10.000=Rp60.000 that should be pay by the consumer now after government increasing the minimum wages.
ReplyDeleteGovernment does this to correct market failure, achieve more equitable distribution
of income and wealth equitable distribution of income and wealth. The example of it is Laws on minimum ages for buying cigarettes and alcohol, Equal Pay Act and acts preventing other forms of discrimination, laws which restrict flight times at night, Government appointed utility regulators who may impose price controls on privatized monopolists e.g. telecommunications, the water industry. In a free market economic system, scarce resources are allocated through the price mechanism where the preferences and spending decisions of consumers and the supply decisions of businesses come together to determine equilibrium prices. The free market works through price signals. When demand is high, the potential profit from supplying to a market rises, leading to an expansion in supply (output) to meet rising demand from consumers. Day to day, the free market mechanism remains a tremendously powerful device for determining how resources are allocated among competing ends.
Most countries are mixed economics that consist the combination of both planned and market economies. Government does influence the market, producers and consumers. Therefore they influence the private by Tax, Subsidies, Rules, and Regulation. We have to know that tax is divided into two: Direct and Indirect Tax. Direct tax can be referred to the income and wealth, and are imposed on people, whilst indirect taxes are taxation on spending, and are imposed on goods and services. Tax really influences government about private market or producers because it increases government’s capital to produce better public goods and services. Subsidy is a grant given by one party for the support of another. It also can be referred to a measure that keeps prices for consumers below market levels, or keeps prices for producers above market levels or that reduces costs for both producers and consumers by giving direct or indirect support. Tax and subsidies help protecting a country’s economy. Government applies tax and subsidies so that citizens would have considerations on buying local good than imported goods. By that, government increases taxes and supple of imported good and give subsidies to local goods. For example in Indonesia, rice from Bangkok and Indonesia have such difference on price because of tax and subsidies although its quality is the same or even produce in the same country or land. Taxes are differentiated by the income a person had by that it helps us from inflation. Inflation is a far gap between poor and wealthy people. Government may offer financial assistance such as tax credits for business investment in research and development or a reduction in corporation tax designed to promote new capital investment and extra employment. Implementation on Rule and Regulations happens to be also the reason that influences the private producers, the economies usually operate with a huge and growing amount of regulations. Regulation may be used to introduce fresh competition into a market, for example; breaking up the existing monopoly power of a service provider. Rules and regulations are used for workers so that they will be protected towards the firms they work in, such as having fair wages and regulations from companies to provide safety goods and services that are strongly important for laborers. Labor’s safety is also important in case or some accidents. If labor’s safety is not considered, accidents might happen causing a company to pay fines for breaking rules and regulations that are given by government. Tax, Subsidies, Rules, and Regulations are implemented so that government can still influence private producers; it aids the economy of the country because without even providing goods and services they still can run firms and the country itself. -Valerie
ReplyDeletehave apology for a super late submission, i forgot to cheek your blog sir. -Valerie
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ReplyDeleteSome private firms might be affected by:
ReplyDelete-Government's Higher Taxes/Charges for Demerit Goods
Example: Company A sells cigarettes, even though government didn't sell or prohibit cigarettes, government still put a high tax for consumers. This is proven when the prices of cigarettes rise every year.
-Government Gives Subsidies to Small Businesses
When the government give subsidies for businesses that sell merit/goods that has good influence(ex: Small School Cap/School tie seller), government will give subsidies/extra cash for this good but small business to be able to survive or even expand.
-Government Prohibit Sellers of Demerit Goods to post vulgar or encouraging advertisement.
This is proven becuase if we observe, in Indonesia, every advertisement about cigarette/alcohol has a tag that says: "Cigarettes can cause danger to lungs, etc...." This is one of the ways of government to affect the market(by discouraging consumers to not buy).
-Government Decline some Import requests
This is proven because some of the things outside the country is not available in Indonesia. Government could restrict some imports because those restricted things might not have good influence for citizens in Indonesia.
So, those are the ways in which government can influence the market and private firms.
Sorry sir Bipin for the late submission.. I also forgot to check your blog. Thank you and so sorry.. Won't happen again sir :) thank you
ReplyDelete