Decision Making for the Solar Energy Storage

Added on - 23 Feb 2020

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Running Head: Production cost in IndiaDecision Making for the Solar Energy Storage ManufacturersStudent NameInstitutional AffiliationCourse/NumberInstructor NameDue Date
Production Cost in India2Decision Making for the Solar Energy Storage ManufacturersQuestion 1The current goods and service tax for batteries in India is very high at 28% (Mishra,2017). This is an interpretation that the costs of battery production are very high. Tax is one ofthe most important cost of production that cannot be avoided. This is the reason why most of thetimes it distorts the level of production. The producing firms are requesting a reduction of thisGST to 5% so that they will be able to produce efficiently at a lower cost. If the proposal isaccepted and the GST is lowered to 5%, the price for batteries will fall; this is because, goodsproduced at a lower cost are sold at a lower price (Autocarindia.com, 2017).The lower price will lead to the demand for batteries rising to a higher level; there will bean increase in quantity of batteries produced since the lower cost will stimulate the producingcompanies to produce more output. On the other hand, the consumer’s increased demand willcreate a need for increased production and since these companies have that potential, quantityproduced will rise. The consumer surplus will rise since they will be willing to pay more for thebatteries but the price offered will be cut. The producer surplus will fall since they will be willingto sell at a higher price, but will be selling at a lower market price.
Production Cost in India3Fig: Demand for batteries after GST is loweredAt the GST of 28% on batteries, the price for the batteries was at level P and the quantityfor batteries demanded was Q. The lowering of the GST to 5% will result in the price fallingfrom P to P1. This price will stimulate additional demand; demand will increase from Q to Q1.The arrows show the price and the quantity movement; the movement is on opposite directionand thus the inverse demand curve.Question 2Rechargeable batteries are a compliment to the production of electric vehicles(Economicpoint.com, 2016). Thus, the lowering of GST to 5% will increase the demand forelectric vehicles. In economics, if the price of a compliment good falls, the demand for the othergood goes up (Munson, 2014). Owing to the lower price of batteries which is an input toElectronic Vehicle (EV), the price for EV will also be lower. At a lower price, the demand for
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