Saturday, July 21, 2018

The Monopoly of cement industry and it's relationship with elasticity of demand

Cement is an important commodity in construction and if the cement price is changed, many things get affected in the economy. For example, cost of buildings will change also the building cost of Roads, fly over, bridges canals  etc will be dependent on cement price changes . In India we got monopoly in cement industry and the cement factories are deciding prices of the cement not based on the production costs but by not producing on their full capacity and by declaring packing holidays etc they are taking the price of cement up.  This is illegal according to the Competition Commission of India laws and there were times when the cement producers were fined.
                According to Alfred Marshall‘s theory of demand and elasticity, three questions arise. "If I lower the price of my product, will the sale increase?"
"If I raise the price, will it affect my profit?"
“If sales tax rate is increased will it have an effect on the revenue collection?"
As we can see that the demand is limited, the decreasing of price can be ruled out
Coming to second question,  If the price is raised , as the demand is constant and there is not much competition in cement industry, there will be no alternative and so the profits will be raised.
If the sales tax is increased Now we can replace it with GST, the government will be blamed and so the government is not ready to do so for political and also welfare causes.
             



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