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Taxation Essay

1093 words - 4 pages

Every organization which provides goods or services to fee paying customers must, by its very nature, charge price for that good or service, to pay for its costs, have retained profits for investments and to keep its shareholders happy. In theory, the market price of any good or service is determined by the interaction of forces of demand and supply. The concepts of demand and supply can be claimed to be among the most important in economics. In order to understand either of them it is necessary to examine the factors that determine them. Although a good's price relative to other goods is probably the most important factor influencing demand for most goods, most of the time, there are other factors as well. These are disposable income, the price of complimentary goods and substitutes, tastes and preferences, expectations, size of population, advertising. Suppliers, on the other hand, are interested in making profits, and thus anything that affects profitability affects the supply. These include the price of other products, costs, technology and goals of firms.The price of any product is determined by the interaction of the forces of demand and supply. The market price is set at the point, where demand equals supply, equilibrium. When an economist refers to the demand for a product he/she means effective demand, which may be defined as "the quantity of the commodity, which will be demanded at any given price over some given period of time." However, the price of the good or service varies according to the changes in either demand or supply. In order to show that it is necessary to look at determinants of demand and supply separately. One of the factors that might affect the demand for beer is a disposable income, income less taxes. For most of the products, when disposable income goes up the demand goes up as well, and vice versa, thus affecting the price of the product. A rise in income leads consumers to buy more of a product, as they have more money to spend.Another factor, which influences demand, is the price of other products, substitutes or complementary goods. Complementary goods are purchased together to satisfy one want, and these goods are in joint demand. In modern world the advertising can also cause changes to the demand. A successful advertising campaign can increase the demand, and thus price, by shifting the demand curve to the right and at the same time move the demand curves of the competitors to the left. Price changes can also be caused by change in one or more of the determinants of supply, like costs or technology. Therefore, if any of the costs change, it will result in the changes in supply and thus prices. The government can also force the companies into higher costs, like the introduction of the minimal wage, which will increase the company's costs. If the costs increase at any given level of output the producers will attempt to pass on these increases on to consumers in the form of higher prices. If they are unable to...

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