Economics Assignment: Tax Incidence, Public Goods, and Interest Groups

This economics assignment analyzes several key concepts. It begins with an examination of tax incidence, discussing how taxes impact consumers and sellers and the role of demand and supply elasticity. The assignment then explores the role of government, including allocative, distributive, stabilization, and regulatory functions within a mixed economy. It provides a detailed overview of public goods, including their characteristics of non-excludability and non-rivalry, and explains the government's role in providing them. Finally, the assignment delves into the role of interest groups, their influence on economic regulation, and their strategies for impacting government policies. The document covers topics like stamp duty and progressive taxation, the provision of public goods, and how interest groups influence economic regulations, providing a comprehensive overview of economics.

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Name of Student:
Name of University:
Author Note:

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TABLE OF CONTENT
PAPER-2014.......................................................................................................................................2
PAPER-2015.......................................................................................................................................9
PAPER-2016.....................................................................................................................................14
REFERENCE...................................................................................................................................22

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PAPER-2014
Question 2
a) The diverse economy leads to diversity in economic and subsequent social conditions of
the people with evident presence of inequalities in resource distribution. The imposition of
tax by government can create different amount of burden on people who earn differently or
belonging to different segment of social status. Thus government as policy maker should
always have sound knowledge about incidence of tax when imposing a tax. Application of
tax makes the price of goods and services higher for both the consumers and sellers. Even
if sellers are taxed on the production or inputs the part of it is passed on the buyers.
Moreover, buyers also pay direct taxes when buying or consuming any product or service.
Difference in demand and supply elasticity create difference of the incidence of tax on
buyers and sellers that further influences their demand and supply decisions and hence the
market transaction changes. If a non flexible and constant tax rate is imposed then people
with lower income will face more incidence of tax that would drain out their resources
more and reduce ability to consume or save deteriorating their economic situation. Thus
incidence of tax should be born in policy maker’s mind.
b) If cigarettes are taxed then the per unit price of the smoke will go up. As per the theory of
demand, higher the price become lower is the demand made by the consumers. Going by
theory, imposition of tax or increasing the rate of tax would make smoking costlier and
hence demand for it would fall. But in reality the incidence of tax might not curb the
demand as claimed if taste and preference is higher leading to inelastic demand. Moreover
those who has increasing income would anyhow be able to pay the higher tax than the one

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who has income fixed at some level If the demand for smoke is inelastic then for one unit
change increase in price, fall in the demand would be less than one unit. Thus higher taxing
can fail the motive of the policy maker.
c) A common source from property taxation has been stamp duty for government over the
years. The amount of tax is derive based on the value property in subject has. The amount
also varies based on different state operation and condition of the property. It is legally
mandatory to pay stamp duty that can also act as evidence regarding purchase or sale of
assets or properties. It refers to a fixed rate of tax designed and implemented on legal basis
by the government. This is more like constant tax rate The movement of government
toward a tax system based on value of property would be more like progressive taxation.
This would allow to earn greater tax revenue from the property coming from high rate of
property tax rate if the property valuation is higher. The lower tax rate is applied on the
properties that have lower values. This create more flexibility and fairness in the tax
collection along with equity and greater productivity in terms of amount collected as
revenue from tax. It is convenient for higher value of asset holder to pay more tax than
someone who has lower value of asset. The economy and convenience of a good tax
structure is thus maintained.
Question 3
a) In the mixed economic situation, the role of government is dual. Beside dealing with
formulation and implementation of the public policies, the government also intervene in
designing and executi9ng various economic role such are discussed as major function of
government in any nation. The functions deal with allocation, distribution, stabilization and

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regulation of the economic operation in the country. These bring forth the mandate of roles
the government adopts.
Allocative role: This refers to the functional role government plays in order to determine
how to allocate public resources within economy. The detailed plan of government
allocation is outlined evidently n the annual budget prepared by the government. The
provision of public goods for the general mass are in hands of government who firs plans
the allocation based on the projects undertaken by government such as constriction of
roads, bridges, flyovers, spending in educational programs and health care planning. The
services of major public goods like defense are under the discretion of administration of
government. Irrespective of the affordability and other concerns the public goods has to be
provided to mass and thus allocative role of government is much crucial to determine the
health of economy.
Distributive Role: The market operation often led to unfair and biased distribution of the
resources like income, goods and services, price and so on. The statement basic to the role
of the government focuses to arrive at the judgment formed collaboratively regarding
desirability of income distribution. The ambition of government intervention is to achieve
different targets like provision of floor to income, increasing the equality in opportunities
for the benefit of all the sectors in the economy, removing inequality through bringing
more income equality and increasing incentive programs targeting to benefit mass of the
population. The policies of taxation and expenditure by the government are the major
instrument to influence the income distribution and bring equality. Rich are taxed more
than poor in order to achieve fair distribution of income.

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Stabilization Role: This refers to the proactive supervision government has to ascertain
steady and stable growth rate in the economy. The stability or pace of economy often gets
hampered by sudden fluctuations or long borne chronic economic problems including
booms, recession, budget deficit, unemployment inflation and so on. The intervention of
the government in such case focuses on bringing back the stability in the economy. The
stabilization can take place through adoption of proper macroeconomic policies that
influence the aggregate demand and supply leading to equilibrium state. The intention of
the government is to impact the level of price, output, unemployment through monetary
and fiscal policies.
Regulatory Role: the individual interest of people or small business in order to earn more
profit and growth often negative externalities created by them on the surrounding
environment and people are neglected.. this results into market failure where free market
operation fails to bring out best an deficient allocation of resources. To bridge the gap
between individual benefits and social benefit and also the private and social cost of the
production government takes up various regulatory role in order to ascertain efficiency in
production and distribution. For example, imposition of tax on carbon emission is a
regulatory measure taken up by government in order to ascertain the efficiency and reduce
negative externalities. Rules and laws are designed by government in order to regulate and
make market system work efficiently.
b) Key properties of public good:
Non-Excludable: This refers to the inability of the public goods provision to keep
someone away from consumption and derivation of utility based on difference of status,
economic and social background, ability or affordability. Since most services are free of

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cost and does not involve any payment to be made in order to make consumption. For
example a mechanism of providing fresh air in the environment can hardly exclude people
based on any differences. The welfare or positive externality of the fresh air will be
consumed and utilized by everyone irrespective of any factors.
Non-Rival: This feature of the public goods refers to the uniqueness of consumption of
goods that don’t create possibility of deprivation for the other. The consumption made by
one would not reduce the consumption of the other or create any obstruction. The utility
derived from the consumption can be different based on the different taste and preference
of the individual but not based on the difference in the availability or quality of the goods
and service. For example, the street light provided by local municipality is public good
with no rivalry in its consumption. The amount of street light is same for no matter
whosoever consume it or derive benefit from it.
c) Provision of public goods
Government is source of public good as many of the services are provided by without
charging any amount from the consumers. To make sure such services are generated and
made open for mass consumption the crucial factor is expenditures made by government. It
is the government spending in terms of fixed start up or maintenance over time, that help
the economy receive provision of public goods. Construction of roads, parks or any social
program subject to education or health sector requires funding of the government.
Moreover, taxation is another way to make provision of various public goods. Market can
make provision of public goods too. For example, the government controls the services
provided by Radio broadcasts and the telecast can not differentiate people and charge

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individually for listening. But indirectly they can be charged through advertisement to
which consumers listen while the radio shows.
Question 5
Interest Group:
Interest group often known as pressure group or special interest group refers to individuals
forming an association or organization with primary intention of influencing public policies
to favor its concerns. The prime focus of the group that lies at the heart of their formation is
the desire to influence the government policies in order to make their cause beneficial and
meet interest of own. The goal posed by them could be beneficial for only the members or
an entire segment of a society. For example, provision of subsidies to farmers by the
government can be agenda of such group. The way of materializing their interest is by
applying lobby that put pressure on the policy makers. The existence of the interest groups
are evident in the every types of political systems and layers in mostly five broad
categories. They are Public interest group, economic Interest group, Non-associational
group, Cause Group and Public & private institutional interest. In all levels of national,
state or local government this group has been operating to play crucial role in the affairs
owing international importance.
Role in Economic Regulation:
The common goals and sources of interest groups obscure, however, the fact that they vary
widely in their form and lobbying strategies both within and across political systems. This
article provides a broad overview that explains these differences and the role that interest
groups play in society. In any economy regulation made by the government is mandatory to
ascertain the wellbeing of the economic policies. Whenever there is any problem or

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instabilities in the market the application of law is compulsory attempt taken by national
government, which takes the form of regulation. If market failure takes place or protection
of environment issues arise out of production and market operation then regulatory policies
of government are mandatory in order to resolve them.
Interest groups can impact government regulation by highlighting any issues currently
taking place in the market stemming from government’s own policy or any failure in
market operation. They can voice their views and establish their own designed policies in
order to deal with the economic problems in the nation. Moreover the group can influence
the political parties by providing them the fund for election campaign and thus hold some
power in political decisions. Other ways of influencing economic regulation is to involve
social media into their agenda of publicizing the views and planning they have for the
society. Interest groups come up with lost of strategies and planning so that they can mould
the government’s policy toward their goals and beliefs. The resources the group has are
sometimes intellectual and sometimes financial. The leader in the industry has their own
interest group that holds lobby that they employ in order to get their policies be
implemented by the government for the betterment of industry and benefits. There are few
groups who shed light on the social as well as environmental problems and they are mostly
short of financial resources. The evoke general awareness through capturing social media
and their mode of representation is based on ethical tools.
Benefits to Society:
The role of the interest group is to proactively create as well as influence general opinion of
the people through enlightenment. Even though the group tries to capture attention of
government in favor of their views, goals agendas or strategic planning; the main motive of

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them is to bring positive changes to the society and improve the economic condition. The
group might be small or big in size but it definitely carries the essence of the needs and
requirement of the entire society or nation as a whole. Yet they can differ within
themselves based on the structure, strategy, target sector or motive. For example a interest
group empathetic to the bad condition of the farmers influences government to adopt
policies that would benefit entire agricultural farmer community. But there might be
present some industrial elite interest group that exploit the power in favor of benefits
limited to his own industry or small market.
PAPER-2015
Question 3
a) Public goods is kind of good which is not excludable and non rivalrous. It means that anyone
can consume it and consumption of one would not reduce the consumption availability of
other. The possibility of exclusion is absent as there is no direct amount charged for it. For
example, the benefit derived from street light is non-excludable as well as non rivalrous as
consumption of one would not impact the consumption of other while everybody gets
benefitted from the light.
On the other hand private good also provides positive benefits but it is excludable and
rivalrous. The excludability stems from the sense or concept of owing the good which is
further consolidated by property right. Moreover private goods are subject to charges or
payment which excludes people who don’t have ability or affordability or willingness to pay
that much. It is rivalrous which means consumption of one would reduce the amount of

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consumable available for others. The foods in restaurant is private good. It excludes those
who has lower income or poor lacking adequate oney to buy food from there. It is rivalrous as
consumption of one occupies the space as well as food that reduces the possible consumption
of others.
b) Water is one of the important natural resource that is neither excludable nor rivalrous in
a broader sense. But subject to differences in the geographical locations and other factors like
water supply, availability and distribution water may become a scare resource and a private
company might come forward to take up the responsibility of reaching water to every
individual. This would require the firm to charge price for the water which was initially
available without any charges. This makes the good excludable and due to limited availability
more consumption by one would reduce the consumption of others hence rivalrous. The
private firm can charge taxes as well to distribute water properly.
c) Provision of public good is primarily based on the allocation of resources made by the
government at its discretion following the need of the economy. Allocation is planned and
mentioned in the budget which entails how much spending would be done to materialize the
plans in action. Thus government expenditure is another important channel through which
public goods are provided. The policymaker can ration such provisions only by rationing the
allocation and subsequent spending of the government.
Question 5 .
a) Natural monopolist is sole producer or supplier in the market that enjoys the benefit of
economies of scale by charging much lower price than normal monopolist. The less price is
socially optimal and attracts more customers which scale sup the firms revenue and the
fixed cost taken up at the beginning continues to fall. The higher initial fixed cost hinder

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many small firms from entering the market and give competition to the monopolist who
turn to natural monopolist through being the only supplier. This confers them much of the
market power and it can be used anytime to distort supply and charge higher prices to his
self interest. The decision of the natural monopolist would greatly impact the market as the
huge market share is dependent upon him. For example, one firm is supplier of electricity
in a state. It serves the entire population of the state. Now if the firm raises per unit
electricity price then the market stability would be disrupted as the cost of production
would rise in the sectors who use electricity as inputs. Moreover, the expenses of
consumers will rise too reducing the disposable income. As a result, the market equilibrium
gets affected. This why government supervision as well as regulation is required to
maintain market stability and ensure efficiency.
b) In presence of natural monopoly, market competition does not work well since the entire
market demand is taken cared of by one firm who incurs lowest cost of supply.
Unregulated monopoly brings forth inefficiency in the market operations and regulation in
terms of price quantity and access play important role in the market. The natural
monopolist may raise price, reduce output or negotiate with the quality of the service and
these aspects require regulation of the government. The regulations regarding price are cost
plus regulation and cap price regulation. Former refers to prices set by government for a
period viable for a period of time keeping parity with the accounting cost of the firm. Cap
price refers to the setting price in advance and limiting the range of price being revised by
the natural monopolist. The falling average cost faced by natural monopolist is one of the
factor that takes it ahead of any firm in the market. The reason behind falling average cost
is larger fixed than variable cost that falls as the production scale goes up. This provides

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incentive for the firm to produce more and gain more benefit as well as market power.
Government can regulate the quantity produced through imposition of quota that fixes an
amount to be produced by the firm. This would allow other firms to access the industry and
produce.
c) Generally the term rent seeking refers to utilization of resources to derive economic gain
without creating any wealth or benefits for the society in return. The public choice theory
of economics explains rent seeking as increase in the existing wealth share of one without
making addition to the wealth for the society. The phenomenon results into reduction of
economic efficiency evident through poor resource allocation, reduction in wealth creation,
loss of government revenue. Moreover the inequality of income gets increased with high
income in favor of the one who manages to rent seek The potential national income
declines too. One example of rent seeking can be a company lobbying government to grant
a tariff protection. This won’t give benefit to the society as whole but the redistribution of
resources would happen to meet the benefit of the company.
Question 7
a) Even though there is no existence of government’s direct influence on the capital market,
indirectly role of government in capital market operation is immense. The major channel
between government and capital market is the fiscal policies implemented by government.
The gains from capital, dividends have taxations associated with that gets influenced by the
fiscal policies. Favorable policies such as tax cut can stimulate purchase and sales of
securities whereas unfavorable policies create disincentive for the investors who can move
away toward other investments of fixed sort. Tightened fiscal policy and consequent fall in

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the expenditures of government might lead to selling of the companies in security market in
order to raise funds.
b) Major source of funding available to companies listed in the stock exchange are equity and
debt funding. The company can exploit the advantage of being in public listing and sell part
of it to potential investors. Annually the form has to share the earned profit among all the
shareholders. The firms can also go for borrowing money firm the investors or other firms,
which is known as debt funding. It can issue bond and sale or purchase them as per their
need. This transaction requires firm to pay interest to the lenders.
c) Capital market is the transaction platform of buyers and sellers of securities. The buyers are
the one who has immense capital to invest and sellers are the one who are in demand of
funding to expand and diversify its business. Private equity firms, venture capitalist, angel
investors, any potential investor including common man, government and institutional
investors participate in the market. Various business units and companies are also main
participants.
Capital is pivotal input of production without which generating economic output is not
possible. To make a business operate on higher scale the arrangement of capital is
mandatory. Capital structure of a firm depicts the mode of managing overall cost by a firm
through its available sources of funding. Debt and equity are major sources of capital. A
firm possesses different sources of capital owing to bond, preferred and common stocks
and long-term debts. Weighted average cost of capital assesses the total cost of capital
incurred by the firm. It gives proportionate weight to all kind of capital coming from
different sources. Higher the measure of the volatility and risk associated with any portfolio
and higher is the rate of return, greater would be the weighted average cost of capital.

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Increasing WACC implies increased risk and decreased valuation of the capital. The cost of
capital coming from equity funding is in terms of profit sharing and dividend payments
while the cost of debt financing is in the form of interest payment
PAPER-2016
Question 2
a) Horizontal Equity:
The theory of public finance records the horizontal equity as one of the structure of
taxation. It posits that the individuals earning same amount of income or possessing assets
of same valuation need to pay equal amount of taxes. The individuals included in the
horizontal taxation are regarded equal irrespective of the presence of various taxation
system. A tax system is more horizontally equitable if it has tendency to be neutral in
nature.
Vertical Equity:
It is another mode of taxing individual available in public taxation policy. This method
focuses on collecting tax on income based on the level of income. More the income level,
greater is the tax amount collected from individual. The driving factor behind such
progressive system of taxation is that the one should pay higher taxes if he or she is able to
pay so backed by the higher earned income level. If someone has less income then he is
supposed to pay lower tax compared to the higher tax payer. This kind of taxation deal with
tax brackets, which outlines different amount of tax rate, fixed against different income

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slabs. Low income tax rates correspond to lower income in the bracket whereas higher tax
rates are designed against higher income forming a progressive taxation system.
Relevance in the taxation system:
These structures of taxation explained and operative in horizontal and vertical equity are
important to ascertain a healthy taxation system in an economy. Taxation is major source of
revenue for government. It often plays important role such instrument of fiscal policies to
bring about stabilization in economy or fight with budget deficits. Income inequality and
subsequent unequal distribution of resources are common economic problem in almost
every country of world. Based on these differences, the ability to pay differs form
individual to individual. In absence of a neutral and flexible tax structure, there are greater
tendency of people to avoid tax payment in order to shrug off from the excessive burden of
tax payment that eats up the income and reduces disposable income. The inequality gets
even worse. Hence the application of horizontal and vertical equity are of great importance
that maintains equality and less burden in collection of tax.
b) The diverse economy leads to diversity in economic and subsequent social conditions of
the people with evident presence of inequalities in resource distribution. The imposition of
tax by government can create different amount of burden on people who earn differently or
belonging to different segment of social status. Thus government as policy maker should
always have sound knowledge about incidence of tax when imposing a tax. Application of
tax makes the price of goods and services higher for both the consumers and sellers. Even
if sellers are taxed on the production or inputs the part of it is passed on the buyers.
Moreover, buyers also pay direct taxes when buying or consuming any product or service.
Difference in demand and supply elasticity create difference of the incidence of tax on

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buyers and sellers that further influences their demand and supply decisions and hence the
market transaction changes. If a non flexible and constant tax rate is imposed then people
with lower income will face more incidence of tax that would drain out their resources
more and reduce ability to consume or save deteriorating their economic situation. Thus
incidence of tax should be born in policy maker’s mind.
c) A good tax system involves the features of equity, neutrality, certainty, efficiency,
simplicity, convenience, economy, elasticity, diversity and fiscal objectives. In order to
charge domestic people for water, the policy maker needs to apply all of these
characteristics to ascertain good taxation system to operate. The first notion to be taken
care of while charging the water tax is the equity. Water is basic amenities of life that
should reach every individual without any deprivation. With limited availability of
resources taxation help the distribution to be fair. Equitable taxation is hence important that
would make everyone pay the fair share of them. The tax charged on water should be
neutral of the tax in other market otherwise; the burden would fall excessive on the
taxpayers. The tax designing and execution structure should be flexible and simple in order
to make everyone deal with administrative complexities. Since the water is essential and
quite evidently it would be consumed more, the amount of tax should be lesser in order to
maintain economy of the tax payer as well as tax collector. Lesser tax rate secures against
tax evasion issue..
Question 3
Public Goods: In economic explanation, a public good is special kind of goods that cater to the
need and benefit of the mass of the population irrespective of affordability, ability or market
provision. This type of goods market has no excludability option based on income difference or

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any social stigma. Everyone in the economy can consume and derive utility from it. Public goods
are those goods that don’t reduce the amount of consumable of one for the consumption made by
any other individual. A park in the locality maintained by the government is one example of public
good as anybody can go there and enjoy in the park. Visit and Enjoyment of one person don’t
hinder the opportunity or amount of fun for the other.
Features of Public Good:
Non-Excludable: This refers to the inability of the public goods provision to keep someone away
from consumption and derivation of utility based on difference of status, economic and social
background, ability or affordability. Since most services are free of cost and does not involve any
payment to be made in order to make consumption. For example a mechanism of providing fresh
air in the environment can hardly exclude people based on any differences. The welfare or positive
externality of the fresh air will be consumed and utilized by everyone irrespective of any factors.
Non-Rival: This feature of the public goods refers to the uniqueness of consumption of goods that
don’t create possibility of deprivation for the other. The consumption made by one would not
reduce the consumption of the other or create any obstruction. The utility derived from the
consumption can be different based on the different taste and preference of the individual but not
based on the difference in the availability or quality of the goods and service. For example, the
street light provided by local municipality is public good with no rivalry in its consumption. The
amount of street light is same for no matter whosoever consume it or derive benefit from it.
d) If public good does not appear in its pure form that is the unique characteristics that it has
are not identifiable then it poses serious problem for the government to make policies. If
any good is termed as public good but in operation they become excludable or rival for the

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consumption of other then it can lead to inefficient market outcome further leading to
market failure. For example, roads are generally public good that have no rivalry and
excludability. But yet congestions and traffics due to excessive use leads to excludability
for the other commuters by affecting the enjoyability or utility derived from the ride. .
again it can happen that government has charged the fireworks display but since it can be
seen from anywhere the people might not pay any charges and enjoy the show anyhow.
The improper identification of excludability and rivalry can lead to free rider problem and
create market failure stemming from positive or negative externalities of consumption
made by people.
e) Provision of Public Good:
Government is source of public good as many of the services are provided by without
charging any amount from the consumers. To make sure such services are generated and
made open for mass consumption the crucial factor is expenditures made by government. It
is the government spending in terms of fixed start up or maintenance over time, that help
the economy receive provision of public goods. Construction of roads, parks or any social
program subject to education or health sector requires funding of the government.
Moreover taxation is another way to make provision of various public goods. Market can
make provision of public goods too. For example, the government controls the services
provided by Radio broadcasts and the telecast can not differentiate people and charge
individually for listening. But indirectly they can be charged through advertisement to
which consumers listen while the radio shows.
Question 7

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a) Capital market is a market place acting as mediator between investors with supply of capital
and business firms with demand of capital to expand and establish their business. The
transaction takes place through buying and selling of instruments of equity and debt. The
primary form of capital market deal with newer stocks and bonds issued whereas secondary
capital market deal with pre-existing securities trading. There are generally two types of
financial instruments transacted in the capital market: debt securities known as bond and
equity securities known as stock. These two are major form of sourcing that can be provided
to any business from capital market. Equity operates when a company sells part of it in the
capital market to raise fund and investors of the market now hold those part. there are many
institutional investors such as mutual fund, pensions; individual investors available in the
capital market to make investment. The equity dealings has no interest bearings on the
company to the investors which is counted as benefit. The problem is that the profit has to be
shared among all the share or stakeholders. The issuance of bond on the other hand induces
the company pay interests to the bondholder.
b) Weighted Average Cost of Capital:
Capital is pivotal input of production without which generating economic output is not
possible. To make a business operate on higher scale the arrangement of capital is
mandatory. A firm possesses different sources of capita owing to bond, preferred and
common stocks and long-term debts. Weighted average cost of capital assesses the total cost
of capital incurred by the firm. It gives proportionate weight to all kind of capital coming
from different sources. Higher the measure of the volatility and risk associated with any
portfolio and higher is the rate of return, greater would be the weighted average cost of
capital. Increasing WACC implies increased risk and decreased valuation of the capital.

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Use of WACC:
In order to make valuation of the investment to take the decision of whether to take it or not,
the role of WACC is crucial. Mostly used by analysts working with security. WACC acts as
important indicator of investment assessment. It is minimum rate of return that is accepted
by the company as yielded return to the investors it has.
c) Advantage:
The listed business in stock exchanges has better liquidity which attracts the investors.
 A company listed in the stock exchange has more publicity and public recognition. This
enhances the credibility and expands the security market.
 Financing regarding expansion or diversification of the business in the future becomes lot
more easier when companies are listed in stock exchange.
 The market value, reputation and image of any firm is well understood based on the
information which are public due to the companies being available in securities exchange
market. this help in merging acquisition decisions of the firms.
 Stock listing of a firm helps it gain internal as well as external sources of institutional
investors.
Disadvantage:
 The listing induce speculator to drive up or down the price sin their favor which create
volatility or fluctuation in the prices of shares. This randomness affects the true investors
 Too much of speculation make the share prices loose its fundamental value and that leads
to failure of stock market to play important indicator of the economic performance.

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 The listing of companies in the stock exchange leads to insider trading within top level
employees and managers due to access in important information by the management. This
affect the common security holders.
 Listing induces company reveal or shares many of the important planning and strategy of
the firm that are more risk prone to be exploited by externals or outsiders.
d) In finance terms disintermediation implies to withdrawing of the capital funds from the
various financial institutions acting as intermediary such as banks. The funds are used
directly as investments. The process removes the intermediaries from the transactions in the
future. It is mostly done in order to invest more where the higher return is possible. One
important use of this is evident in the bond issuance that secures additional financial support.

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