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Introduction

The assignment has two parts. The first part is related to the theories of micro economics. Micro economics analysis is based on the theory of law of demand, law of supply and equilibrium. It has the details about how consumer behavior impacts the market equilibrium.

The second part is based on the macroeconomic policies for expanding the business in Brazil. For business expansion in Brazil, all the monetary and fiscal policies are explained in detail in the assignment.

1. Micro Economics

Micro economics as a branch of economics studies the consumer behavior and its impact on the organization for making the decision on the allocation of scarce resources. Micro economics analysis is based on the theory of law of demand, law of supply and equilibrium (Bade, 2001). The law of demand states the demand for product increases when price decreases and vice versa. The law of supply states that the increase in price will increase the supply of product and vice versa. Equilibrium is the situation of the system where the consumer demand and supply remain in balance. The business is majorly dependent on theory of micro economics for making the various decisions that are important for future growth and development. The theory of demand and supply is very significant and can provide the exact data for the future production. The demand and price has direct relation to consumer behaviors.

Micro economics

1.1 Consumers and companies behavior can affect the market equilibrium

The market structure is largely influenced by the individuals and firms behavior. It gets affected by the prices of the firm’s products. The consumer behavior emphasizes on the factors that has the influence on the consumer’s decision making process. The theory of consumer is developed by the famous economists Alfred Marshall.

The theory is based on the supposition that an individual consumer is a rational buyer and possesses the good information about the market and also he is aware of his needs and preferences and is capable of determining the best way of satisfying them. The fast food industry globally fits into this kind of market structure as in nature it is monopolistic. In the particular conditions the consumers generally behave in a similar fashion and follow a logical process for buying with the sole objective of getting the optimum value for the money spend by them (Pearloff, 2007). The prices of the products are the reason behind the strongest motivation. The theory by Alfred Marshal deals with the influence of only price and income on consumer behavior. As per is economic model the individual will only buy the product that will give him the greatest satisfaction level as per their preferences and the prices of the related goods.

The consumer behavior reflects the interaction between the change in prices and demand from consumers. Consumers play an imperative role in the economy because they spend the majority of their incomes on goods and services produced by the firms. It is significant for firms to recognize the critical objective of the consumer. While firms are implicit to be maximizing profits, consumers on the other hand are implicit to be maximizing their satisfaction by consuming the goods and services (Mankiw, 2006).

This way the consumer behavior regarding the demand for the product is directly associated with the market equilibrium. At the higher prices the demand for the product is reduced and the supply is also affected that impacts the market equilibrium.

Macro Economic Analysis

For expansion of business, Brazil is one of the countries that has free port for trading. It has very open economic policy. In recent years it has become the largest trading country. It has very strong multilateral system of trading. Brazil is also a member of World Trade Organization. The country is dedicated towards free and open multilateral system of trading.

Economic policies

The country follows the policy of free trade and free enterprise. There is no policy for revenue duties and import tariffs. The multilateral system of trading is the cornerstone for trading in Brazil. It also provides the very good infrastructure for the international trade. The import and export policies are also liberal and hence attracting the business entities to expand in the country. Due to its policies the value of trade increased in 2012 as compared to 2011. There was a total increase of Brazilian real 7,346 billion.

Trade Value ( Brazilian real in Millions)

 

2008

2009

2010

2011

2012

 

 

 

 

 

 

Import

3,025,288

2,692,356

3,364,840

3,764,596

3,912,163

 

 

 

 

 

 

Export

90,757

57,742

69,512

65,662

58,830

(Domestic)

 

 

 

 

 

 

 

 

 

 

 

Re - Exports

2,733,394

2,4111347

2,961,507

3,271,592

3,375,516

The remarkable growth in trading has gained the prominence in the economy of Brazil. The department of trade and industry conducts the international relations and implement the trade agreements and policies. They provide the support to small scale and medium scale enterprises. Brazil has become an international manufacturing base for production of technologically intensive products. The government of Brazil strives for providing friendly environment to service and manufacturing industry. It has maintained the macroeconomic stability and consistency towards trade by its simple taxation policies, business friendly infrastructure, human resource and training facilities and the strong legal framework. The country is recognized for outstanding achievements in trading sector. They have the policies for training of manpower resources which help the industries to flourish with their polished skills. The government is taking each and every step to ensure the promotion of domestic as well as international trade in the country.

Monetary Policy

The monetary policy of honking is based on currency stability. The exchange rate of honking dollar against US dollar is, 1 BRL to US $0.44. By this stability they aim at promoting the sustainable economic growth. Starting a new business in Brazil is very easy as the registration is done by Companies Ordinance. It has developed an active interbank facility for markets where the Brazilian real can be transacted. This has made Brazil an external oriented market. The clearing system of currency is also a factor for increased trade activities in country. The policies are favorable for the company who want to expand and establish their business in Brazil. The convertibility policy of currency adds to the ease of establishing the business. The stability principle also makes the investments secure from business perspective and hence lead to low risk involved. This also helps in increasing the profitability of the business. The liberal taxation policy and duty charges also a major factor of attraction towards the country. This can be easily said that the country is suitable for expansion of business and there is very less risk and lots of opportunities involved.

Fiscal Policy

Brazil has made the significant improvements in fiscal governance. Fiscal policies involve the spending policies of government towards improvement of employment rates, inflation control and stabilizing the business cycle (Lora, 2007). For example, for fighting the recession the government can make the fiscal policy of reducing the tax rates so that people have more money to invest and spend. The increase in investment and spending will improve the economic growth. Brazil is making an attempt to maintain the fiscal discipline in country. The economy is getting 50% of income from indirect taxes. The tax taken as percent of GDP rose 12 percentage points between 1993 and 2005. This makes Brazil an outlier among developing countries in terms of its ability to extract resources from society (Lora, 2007).

As a free economy the country is dependent on international trade. The government has promoted Special Administration regions (SAR) for international trade facilities. The government has adopted several temporary policies for supporting the trade in the country. Credit expansion facilities are also provided for establishing the business in the country. It has also formulated the policies for intellectual property. The policy has laid down the law which states that there is no difference between Brazilian residents and foreign entities. It clearly states that foreign entities can also seek enforcement of public rights in local courts. This provides both civil and criminal remedies. This provision has made the sense of security in the minds of people who are looking for expansion of their business in the country. Apart from these, the government of Brazil imposes no restriction for foreign investment. There is no procedure for investment and the laws ensure to give security towards movement of intangible assets, capital and goods. The laws for establishing companies, mergers, acquisitions and taxation are very liberal. There is no cumbersome procedure involved in all this. The procedure is seamless and time effective (melo and Marcus, 2010).

Taxation Policy

Rates on Income Tax

2% – 17%

 

 

Tax rate for capital gains

0%

 

 

Double tax relief

Territorial

 

 

Assessment year

1 April till 31 March

 

 

Due date of Return

1 month from issue date

 

 

Wealth tax

Nil

 

 

Social security

5%

 

 

Inheritance tax

Nil

 

 

VAT

NIL

 All the above factors have made Brazil a hub for international trade. The country is suitable for all segments and an easy destination for investment and growth. For establishing a new company there is no minimum capital requirement. There is no nationality requirement for board of directors, shareholders or management. The registration fees for the company are only Brazilian real 1,720 which is much lower as compared to other countries. The shares of the company must be registered and there is a provision for compulsory annual general meeting to be held once in a year. Even for mergers they do not have any minimum shareholding requirements.

Conclusion

To conclude, this assignment clearly states the importance of micro as well as macro economic theories for the business or firm. The theories of demand and supply have the direct impact on the business decisions and consumer behavior impacts the market equilibrium directly. At the same time for the expansion of business it is important to understand the macroeconomic policies of the country where the expansion is intended.

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