ECON20039 Economics for Managers Report 2 Sample
Objectives
This assessment item relates to course learning outcomes 1 and 2 as listed in the Unit Profile.
This research assignment has two questions.
Q1. ..................................................................................
Explain the concept of the price elasticity of demand and using the economic journals identify estimates of the price elasticity of demand for at least two different products (one for inelastic and one for elastic). Comment on the magnitudes of these estimates in relation to the standard economic determinants of the price elasticity of demand. Why is it important for the producer to consider the price elasticity of demand when setting the price for the product? Using appropriate diagrams, explain the likely impact of COVID-19 on price elasticity of demand.
In answering this question, as a minimum, you need to:
• explain the concept and types of price elasticity of demand and its importance in economics
• identify actual elasticity of demand estimates for two products (one for inelastic and on for elastic) from economic journals and critically analyse the magnitude of these estimates
• analyse the role of price elasticity of demand when setting the price for the producer
• assess how is COVID-19 impacting the price elasticity of demand for goods and services
• provide relevant information, use table, diagrams where appropriate.
Q2.....................................................................................
Choose an oligopoly industry from your home country that was affected by the current pandemic. Using the characteristics of market structures, compare it to the case if it would be a monopolistic competitive market. Explain the effect of pandemic on the industry using economic theory, real life data and illustrate it on a diagram. Was the government successful in reducing the impacts of pandemic on this industry?
In answering this question, as a minimum, you need to:
• Provide a brief description of your case study in sufficient details
• Use features of monopolistic competitive market structure such as number of sellers, type of product, entry conditions, profits and losses in the short and long run, advertising, research and development and appropriate diagrams to justify its oligopolistic characteristics.
• Analyse the effect of pandemic on market outcomes (i.e. price, sales, production, profit etc)
• Use economic theory and real data to analyse the effects of government measures against negative effects of pandemic on this industry
• Provide relevant information, use tables, diagrams where appropriate. You should use real data as much as possible.
Assessment Criteria
• You must refer to the textbook in the first instance. Besides the textbook, you should also refer to a few other academic books, journal articles and relevant websites in answering these questions.
• Use real life examples (with references) to support your discussion.
• Answers must be complete, addressing the specific tasks nominated in the questions.
• Use in-text referencing and provide a list of references.
• All submissions for this course must use the American Psychological Association
(APA) referencing style (details can be obtained at https://www.cqu.edu.au/student-life/services-and-facilities/referencing/cquniversity-referencing-guides).
• Concepts must be defined accurately and completely.
• The assumptions upon which the analysis is based must be stated at the onset.
• Diagrams must be drawn properly, correctly labelled and the relations they depict explained.
• Photocopied and scanned graphs from books, articles or websites are not acceptable. It is preferable to hand-draw a graph then scan it to insert in your file.
• Remember an extension is not a gift, it is a burden.
Note: no submissions including automatically submitted by Moodle will be reverted to the draft after the due date.
• In Moodle there is now a default setting, which will automatically submit your assignment for marking, if you have forgotten to click the Submit for marking button.
• After an assignment's due date and time has passed, any assignments that are still in draft mode (i.e. you have not yet submitted the assignment for marking) will be auto-submitted on your behalf.
Solution
Question 1: Analysis of Price elasticity
Introduction
Price elasticity of demand is the most widely used measure to gauge the sensitivity of consumers to price changes and helps economists understand how demand reacts when prices fluctuate. This section illustrates the way the Covid-19 pandemic had a direct impact on the elasticity level of products or services.
Explain price elasticity along with its types and importance
Price elasticity is an economic concept that measures how the quantity of a good or service demanded changes in response to changes in its price. It is calculated by dividing the percentage change in quantity by the percentage change in price (Petricek, Chalupa & Chadt, 2020). University Assignment Help, Generally, if a product’s demand increases more than proportionally with the decrease in its price, then it is said to be elastic. In other words, products that are elastic respond more vigorously to price changes than inelastic ones.
Price elasticity can be classified into two types: Elastic Demand and Inelastic Demand.
Elastic demand is a type of economic demand that changes according to the change in price.
.png)
Figure 1: Perfectly Elastic Demand Curve
(Source: Self-Creation)
(Source: Self-Creation)
From the above figure, it can be said that when the price of a product goes up, the quantity demanded decreases and vice versa when the price goes down. Elastic demand is usually seen in luxury goods where customers are more likely to reduce their spending when prices rise significantly or increase their spending if prices fall.
Inelastic demand is a term used in economics to refer to goods and services whose demand does not change significantly when the price changes.
.png)
Figure 2: Perfectly Inelastic Demand Curve
(Source: Self Creation)
From the above figure, it can be deduced that even if the price of the good or service increases, consumers will still purchase it at roughly the same rate as they did before.
The importance of Price elasticity lies in the ability of firms to adjust their prices according to the demand for their products. By analysing the price elasticity of a product, companies can identify if they have pricing power or not. In words of Kubler et al. (2020), this knowledge can then be used to fine-tune pricing strategies and increase profitability by adjusting prices in response to changes in consumer behaviour and market conditions.
Analyse actual estimates of demand elasticity for two products
To illustrate the concept of price elasticity, let’s take a look at two products: gas and candy bars. Gas is considered to be an inelastic product since its demand does not change much when its price changes. On the other hand, candy bars are considered to be an elastic product since its demand changes more substantially when its price changes.
.png)
Figure 3: Actual estimates of demand elasticity
(Source: Self Creation)
The difference in elasticity in the above figure where D0 is inelastic demand curve and D1 is elastic demand curve. With the help of the figure, it can be explained that how much of a consumer’s budget gas and candy bars take up. Since gas is a necessary item for most people, it makes up a significant portion of their budget and so any increases in price will not necessarily prevent them from buying it (Beck & Lein, 2020). On the other hand, candy bars are a luxury item, meaning that an increase in its price might make consumers reconsider buying it or opt for a cheaper alternative.
Overall, it is important for companies to understand the price elasticity of their products so that they can adjust their prices accordingly and maximize profits. By analysing actual estimates of demand elasticity for different products, companies can gain insight into how consumers respond to changes in price and use this information to inform their pricing strategies.
Analyse Role of Price Elasticity of Demand for Producer
For producers, understanding the price elasticity of their products is essential in order to set the right prices. If a product has an inelastic demand, then the producer can raise its prices and still maintain a healthy level of sales. On the other hand, if a product has an elastic demand, then the producer must keep prices low in order to maintain sales (Gupta, Ivanov & Choi, 2021). In addition, producers can also use price elasticity to determine the optimal pricing strategy for different products. Thus, if a product has an inelastic demand, then it may be more beneficial for the producer to set higher prices and target customers who are willing to pay more for a premium product. On the other hand, if a product has an elastic demand, then it may be more beneficial for the producer to set lower prices and target customers who are looking for value-for-money products.
Overall, understanding the price elasticity of a product is key for producers when setting their prices. By analysing the actual estimates of demand elasticity for different products, producers can gain insights into how their customers respond to changes in price and use this information to set prices that maximize profits while still remaining competitive.
Assess Impact of Price Elasticity of Demand on Products Upon Exposure to Covid-19 Pandemic
The Covid-19 pandemic has had a significant impact on the global economy and the demand elasticity of many products. For example, the demand for luxury goods such as cars and designer clothing has decreased drastically while the demand for essential items such as food, medicine, and cleaning supplies has increased significantly.
As cited by Caballero-Morales (2021), this emerged a need for companies to adjust their pricing strategies to account for the changing demand elasticity of their products. For luxury goods, companies must lower prices in order to increase sales and remain competitive in the market. On the other hand, for essential items, companies must raise prices due to increased demand but keep them affordable so as not to price out customers. This is due to a number of factors, such as economic uncertainty and lack of other options leading people to purchase goods they would normally avoid. This effect has been especially notable in essential items like food, household cleaning supplies, and medical equipment. Demand for these products has continued to remain relatively high even as prices have increased. Additionally, the demand for non-essential goods like luxury items and entertainment services has decreased significantly due to reduced economic activity.
Overall, the Covid-19 pandemic has caused a change in price elasticity of demand for both essential and non-essential goods and services. While prices had typically been seen to have an inverse relationship with demand, the pandemic has caused this effect to be much less pronounced. As mentioned by Amaral, Chang & Burns (2022), this is likely to have long-term implications for both retailers and consumers in terms of pricing and purchasing decisions. As such, it is imperative that businesses take into account these changes when making decisions about their pricing strategies. It may also be worthwhile to consider offering discounts or other incentives in order to encourage customers to purchase their products. Doing so could help businesses remain competitive and profitable despite changing market conditions. Ultimately, understanding the impacts of Covid-19 on price elasticity of demand can be a key factor in ensuring profitability for businesses in these uncertain times.
Conclusion
The Covid-19 pandemic has had a significant impact on the price elasticity of demand for goods and services. Generally, when the price of a good or service increases, the quantity demanded decreases. However, during this pandemic, it has been observed that while prices have increased due to inflation or other factors, demand for certain goods and services has remained relatively the same or even increased
Question 2: Analysis of an oligopoly industry in India affected by recent pandemic
Introduction
The coronavirus pandemic has had major implications for the price elasticity of demand in many industries. While some products have seen a decrease in demand due to financial insecurity and reduced disposable income, others have seen an increase in demand as people stock up on necessities or switch to alternatives. The section focused to analyse the travel and tourism industry of India and extent to which the sector got affected as a result of pandemic.
A case study analysis on the travel and tourism industry of India
The Covid-19 pandemic has had a drastic and unprecedented impact on the travel and tourism industry in India. As cited by Bakar & Rosbi (2020), the lockdown measures implemented across the country have caused complete disruption to the sector, as all domestic and international flights remain suspended, hotels are closed or running at reduced capacity, and tourist attractions remain shut. In an effort to support the industry, the Indian government has taken a number of steps. These include extending financial relief packages to travel and tourism businesses, providing tax exemptions for these businesses, and implementing fast track visa processing systems for international travellers.
Despite these measures, the future of the travel and tourism industry in India remains uncertain. In words of Santos Oliveira & Aldrighi (2021), domestic demand is expected to remain sluggish due to the fear of Covid-19, while international demand may take longer to recover due to ongoing travel restrictions. Additionally, many businesses are expected to struggle in the context of an uncertain economic environment.
However, there is hope that the industry will eventually rebound and recovery efforts have already begun. Airlines have started operating domestic flights, many hotels and tourist attractions have reopened, and the government has started launching campaigns to encourage domestic tourism. These developments suggest that the travel and tourism industry in India will eventually return to its pre-pandemic levels–although it may take some time for it to fully recover. Thus, even though the Covid-19 pandemic has posed an immense challenge to the travel and tourism industry in India, there is hope that recovery efforts would eventually lead to a full rebound (Caballero-Morales, 2021). With continued support from the government and businesses taking proactive steps, the sector has a chance to rebuild itself and thrive in the future.
Justify its oligopolistic characteristics and compare instances if in a monopolistic competitive market
The travel and tourism industry in India is highly oligopolistic in nature. This is due to the fact that a few key players, such as MakeMyTrip dominate the market. These firms have significant bargaining power, allowing them to dictate terms and pricing. Furthermore, many of these companies are vertically integrated into other sectors of the industry, such as transportation and hospitality. In words of Gupta, Ivanov & Choi (2021), this allows them to benefit from economies of scale, giving them a competitive advantage over smaller players.
If the industry were in a monopolistically competitive market, competition would be much more intense and pricing power would be significantly reduced. Additionally, smaller players would have an easier time entering the market due to limited barriers to entry. This would create a more dynamic and diversified industry, but it may also lead to lower profits due to increased competition. Overall, the oligopolistic structure of the travel and tourism industry in India is beneficial for larger players. It allows them to maintain pricing power and capitalize on economies of scale while limiting competition from smaller firms. This structure is likely to remain in place, although continued government support and proactive steps taken by companies may lead to a more competitive market in the long run. This conveys the fact that the oligopolistic characteristics of the travel and tourism industry in India have allowed major players to capitalize on economies of scale, maintain pricing power, and limit the entry of smaller players. This has helped the industry to remain relatively strong despite the Covid-19 pandemic. However, further government support and proactive steps may lead to a more competitive market in the long run.
If the tourism industry of India had been in a monopolistic competitive market, it would have been more challenging for local companies and businesses to compete with larger international competitors. As stated by Contractor (2022), there would be fewer barriers to entry, meaning that more players could enter the market and create competition. Additionally, there would likely be more product differentiation than in a monopoly, as companies would try to differentiate their offerings in order to stand out from the competition. This increased competition could lead to better pricing for customers, as companies may have to lower prices in order to remain competitive. It could also mean improved customer service and product quality, as companies would have to focus on providing better services and products in order to stay ahead of the competition. Overall, monopolistic competition in India's tourism industry could bring many benefits to customers, offering them more choices at better prices. Companies would need to focus on innovation and differentiating their products in order to remain competitive, leading to an overall improvement in the quality of services offered by Indian tourism companies. However, it could also lead to more companies entering the market, which could ultimately lead to an overcrowded industry.
Illustrate impact of the pandemic on market outcomes
The Covid-19 pandemic has had a severe impact on the travel and tourism industry in India. This is due to both travel restrictions imposed by the government as well as consumer behaviour, such as avoiding crowded places. This has led to a decrease in demand for flights, hotels, and other services related to travel (Samar & Saurabh (2021).
.png)
Figure 4: Covid-19 impact on travel and tourism sector in India
(Source: Financialexpress.com, 2022)
The above figure reveals the fact that the Indian travel and tourism sector has been largely affected as a result of sudden outbreak of the Covid-19 pandemic thus making a number of individuals in various age groups to show reluctance in travelling. To illustrate the impact of the pandemic on market outcomes, data from India’s Ministry of Tourism showed that domestic tourism had dropped by nearly 50% and international tourist arrivals decreased by almost 90% (Financialexpress.com, 2022). This has had a significant effect on the overall performance of the industry. From an economic perspective, the decrease in demand for travel services has led to a decrease in revenue generated by the sector. This, combined with rising costs related to pandemic prevention measures, has forced many businesses in the sector to close or downsize.
The oligopolistic structure of the travel and tourism industry has also helped large players to remain relatively unscathed during this time, as they are able to maintain pricing power and capitalize on economies of scale while limiting competition from smaller firms. According to the World Tourism Organization, international tourist arrivals in India declined by 82% in 2020 due to travel restrictions and economic uncertainty (Samar & Saurabh, 2021). This has resulted in significant losses for businesses within the sector, with hotels and restaurants being some of the hardest hit. To understand the economic impact of the pandemic, it is useful to explore relevant economic theory. For example, neoclassical economics suggests that markets are composed of rational and self-interested actors who behave according to the law of supply and demand. The pandemic has caused a sharp reduction in demand for tourism services due to decreased travel opportunities, increased health risks, and economic uncertainties. This has caused a surplus of supply as businesses are unable to sell their services at pre-pandemic prices.
In this regard, the AD-AS model is used to analyse the effects of macroeconomic factors on aggregate demand and supply. In India, the tourism industry was severely impacted by the COVID-19 pandemic due to a sharp decline in global travel. This caused a decrease in aggregate demand for tourism services, resulting in fewer tourists visiting India. As a result, tourism businesses in India experienced a decline in revenues and profitability. At the same time, the pandemic also led to an increase in aggregate supply as tourism businesses were forced to reduce their costs in order to stay afloat. This resulted in lower pricing for tourism services, which further reduced demand for these services (Contractor, 2022). Thus, the decrease in both demand and supply led to a decline in market outcomes such as lower employment and profit levels for tourism businesses in India.
Thus, the AD-AS model illustrates how macroeconomic factors can affect market outcomes, particularly in the case of the COVID-19 pandemic and its impact on the tourism industry in India. The decrease in aggregate demand combined with an increase in aggregate supply resulted in a decline in market outcomes such as employment and profits for the tourism industry. In order to recover from these losses, tourism businesses must focus on increasing demand by providing attractive services at competitive prices. This will ensure that the industry can bounce back from the effects of the pandemic and return to its pre-pandemic levels.
Analyse level of success of government measures in reduction of pandemic effect
The Indian tourism industry has been one of the most impacted sectors during the COVID-19 pandemic. It is estimated that about 3 million jobs have been lost in this sector alone, with losses worth around $40 billion. In order to address some of these problems, the Government of India had implemented several measures such as providing financial assistance to tourism-related businesses and providing incentives for domestic travel. Additionally, the government also launched the ‘Dekho Apna Desh’ campaign to promote domestic travel within India. The impact of these measures can be seen from the fact that in 2021, there was an increase of 11% in tourist visits as compared to the previous year (Contractor, 2022). This was also accompanied by a 6% increase in domestic tourism spending as well. Furthermore, there was also an increase of 9% in the number of foreign tourists to India during this period, suggesting that the government measures have been successful in encouraging people to travel within India. Overall, it can be said that the various initiatives taken by the Government of India have been successful in their goal of reducing the impact of the pandemic on the tourism industry. The measures taken, such as providing financial assistance and promoting domestic travel, have had a positive effect on the industry, with an increase in both international and domestic tourists. Though there is still much room for improvement, these initiatives are a step in the right direction and will help the Indian tourism industry to recover from the economic losses caused by the pandemic.
Conclusion
The COVID-19 pandemic has had a severe impact on the Indian tourism industry. The structure is likely to remain in place, although continued government support and proactive steps taken by companies may lead to a more competitive market in the long run. Overall, the Covid-19 pandemic has had an enormous effect on the travel and tourism industry in India, with decreased demand leading to a decrease in revenue and an increase in costs. The oligopolistic structure of the industry has helped some players to remain relatively unscathed during this time, although further government support and proactive steps taken by companies may lead to a more competitive market in the long run. This could ultimately benefit customers, offering them more choices at better prices.
Reference List
Amaral, N. B., Chang, B., & Burns, R. (2022). Understanding consumer stockpiling: Insights provided during the COVID?19 pandemic. Journal of Consumer Affairs, 56(1), 211-236. Retrieved from https://onlinelibrary.wiley.com/doi/abs/10.1111/joca.12434
Bakar, N. A., & Rosbi, S. (2020). Effect of Coronavirus disease (COVID-19) to tourism industry. International Journal of Advanced Engineering Research and Science, 7(4), 189-193. Retrieved from https://www.academia.edu/download/62985590/23IJAERS-0420201-Effectof20200417-86072-y6r8j9.pdf
Beck, G. W., & Lein, S. M. (2020). Price elasticities and demand-side real rigidities in micro data and in macro models. Journal of Monetary Economics, 115, 200-212. Retrieved from https://www.sciencedirect.com/science/article/abs/pii/S0304393219301138
Caballero-Morales, S. O. (2021). Innovation as recovery strategy for SMEs in emerging economies during the COVID-19 pandemic. Research in international business and finance, 57, 101396. Retrieved from https://www.sciencedirect.com/science/article/pii/S0275531921000179
Financialexpress.com (2022). Financial Express. Retrieved on 11th Jan 2022 from https://www.financialexpress.com/lifestyle/travel-tourism/impact-of-covid-19-on-travel-and-tourism-sector-and-how-seis-can-bring-relief/2230559/
Gupta, V., Ivanov, D., & Choi, T. M. (2021). Competitive pricing of substitute products under supply disruption. Omega, 101, 102279. Retrieved from https://www.sciencedirect.com/science/article/pii/S0305048319313155
Kubler, R. V., Langmaack, M., Albers, S., & Hoyer, W. D. (2020). The impact of value-related crises on price and product-performance elasticities. Journal of the Academy of Marketing Science, 48(4), 776-794. Retrieved from https://link.springer.com/article/10.1007/s11747-019-00702-5
Petricek, M., Chalupa, S., & Chadt, K. (2020). Identification of consumer behavior based on price elasticity: A case study of the Prague market of accommodation services. Sustainability, 12(22), 9452. Retrieved from https://www.mdpi.com/2071-1050/12/22/9452
Santos, L. J., Oliveira, A. V., & Aldrighi, D. M. (2021). Testing the differentiated impact of the COVID-19 pandemic on air travel demand considering social inclusion. Journal of Air Transport Management, 94, 102082. Retrieved from https://www.sciencedirect.com/science/article/pii/S096969972100065X
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