Intermediate Microeconomics

This document provides study material for Intermediate Microeconomics. It includes scenarios on topics like the $2,000 Bendable Phone, selling cars online without a test drive, and renewable energy subsidies.

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INTERMEDIATE MICROECONOMICS
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Table of Contents
Scenario 1: The $2,000 Bendable Phone: Hold ’Em or Fold ’Em..................................................2
I) How the companies will disseminate knowledge regarding different consumer groups the new
product will appeal to?.....................................................................................................................2
ii) How the companies will determine consumer preferences?......................................................3
iii) The number of consumers expected to purchase the phones.....................................................4
Scenario 2: Tesla Is Betting It Can Sell Cars Online, Without a Test Drive...................................5
Scenario 3: Renewable Energy Subsidies -- Yes Or No?................................................................8
Bibliography..................................................................................................................................11

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Scenario 1: The $2,000 Bendable Phone: Hold ’Em or Fold ’Em
I) How the companies will disseminate knowledge regarding different consumer groups the
new product will appeal to?
The market of smart phone has seen the launch of folding smart phones by two of the
most notable companies in the form of Samsung mobile technology and the Huawei
Technologies Co. Looking into the concept of Theory of consumer behavior, the companies will
be willing to identify the preference of the consumer, budget constraint of the consumer and their
choices. On the other hand, the smart phone industry has seen five straight quarters where sales
have fallen. This is because, the users of the Smart phone companies finds less reason to change
their models. However, the folding technology of smart phones has not been proven in realistic
world, regarding the performance of the mobile phones. Now before bringing in new folding
technologies of the smart phones, the producers will have to analyze three main factors,
preference of the customers, budget constraint of consumers and their choice of goods.
Analyzing these three items is important in the sense that it will definitely allow the
companies to increase the marketing of their items in market. On the other hand, through the
improvement in analyzing these factors will acknowledge the fact that in order to understand the
above-mentioned factors the smart phone companies will be able to bring down the price of the
phones. The price of the commodities is one of the important factors that help in the
development of budget constraint. Now the preference of the consumers is obviously depending
on the price of the product. On the other hand, the price of Samsung smart phones is around
$1980 and the price of the products launched by Huawei Technologies Co. is around $2600
which is very high compared to First I phone models. The minimum cost of First I phone is

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around $499 in 2007 and more models will come at $199. The market analyst claims the fact that
high price is going to make the market small. The vendors will ship less number of phones
compared to the amount that was shipped last year.
ii) How the companies will determine consumer preferences?
In order to identify the consumer preferences, the companies like Samsung and Huawei
will have to undergo survey that will definitely allow the companies to increase their market
participation rate. One of the best ways to understand the choice of the consumers is to indulge
the development of surveys that the companies will be willing to do in order to increase their
innovations. The methods of collecting consumer data can be done through the improvisation of
direct method of survey and through questionnaire method. It is important in the sense that
through the improvement in the questionnaire more amount of respondents can be reached
compared to normal method of survey. However, making survey in the market basket will never
reveal the axioms of consumer behavior theory.
Axiom like more is preferred to less and the participants cannot capture transitivity truly
due to the presence of fraudulent activities.

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Figure 1: Randomized SARP violations
(Source: Jones et al. 2015)
Some of the design of the survey that has been build to identify the axioms of revealed
preference includes “red herring questions”, “trap questions”, “validation questions” and
“verification ratings”. Moreover, sometimes, these techniques fail because of the fact that
respondents intentionally give wrong answers or maybe they have not read all the procedures
before answering the questions (Jones et al. 2015).
Violation of TQ has a direct impact on the decreased level of consistency measured in
WARP. Violators have completely overstated their willingness to pay or WTP and this is the
main reason that is popping up on the development of axioms of consumer behavior that cannot
be identified from the survey on the consumer baskets. With condensed attribute set of four
multi-valued “products” in the experimental design, the SARP violations can occur at four times
cycle. Using the Logit and Tobit model, the study will be aiming to increase the efficiency level
of the survey that will be used to identify the development of survey that will literally increase
the efficiency of the resource development.
iii) The number of consumers expected to purchase the phones
From the market survey, it can be claimed that folding smart phones are completely new
product that has been launched in the market. On the other hand, using the developed amount of
the resources will be looking to increase the selling of the products. Through the improvement in
the purchase of the new products, the companies like Samsung and Huawei claims that
responding to the new products that has been launched in the market will increase the reach of
the potential customer. Through the development of high price of the products will attract high-
income customers at first and later on when the price will fall then it will attract many middle-

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income families. Through the development of this strategy, the price will fall and will force the
demand of the customers to upsurge. However, on the other hand, the market of smart phones
will not allow the products to decrease the price, as the customers will be more willing to make
their decision responding to the budget constraint. This is important in the aspect that it will
definitely have an impact on the consumer preference theory. This is important in the sense that
through the improvement in the customer preference will increase the preference of the market.
On the other hand, through the development of price mechanism will allow the economy to
increase the demand of customers. On the other hand, in the market of China, the consumers will
be willing to increase the demand for the iphone instead of high priced Samsung and Huawei
markets. However, the overall market for Huawei has increased by 35% globally.
Scenario 2: Tesla Is Betting It Can Sell Cars Online, Without a Test Drive
In the modern world of globalisation, the advent of internet and online business is taking
the structure of the business into a new dimension. Through the improvement in the development
of online business, most of producers of consumer able goods are trying to identify the customer
base that is making potential impact in their decision-making system. On the other hand, through
the improvement in the online business is important. Now the company is willing to depend on
the trust and brand awareness on the demand of customers. It is important for the company to
increase the brand awareness among the customers regarding the development of customer
demand based on local guidance. It is important in the sense that TESLA is mainly looking to
increase the development of choice of customer preference. On the other hand, through the
improvement in the development of online shopping, the TESLA Company is mainly going to
trust the relationship they are having with the local channels.

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The whole process of selling the vehicles through online site is problematic in the sense
that final paperwork prior to handling of cars are done by state. On the other hand, one of the
necessary stat about the failure of the online car business is because of the fact that only 1%
better customer among total sales depends on the online market. This is important in the sense
that through the improvement in the online shopping the number of customer will increase, as
they will be able to operate in the global terms. It has been seen that the number of online sales is
very less and total number of vehicles sold is about 39.5 million. The trust of the customer
regarding using the car without testing the car in case of rental market is quite different. Scott
Painter, the owner of application based car rental service has claimed that customers are happy in
choosing the cars without testing the vehicles. He claims that the demand of TESLA is
unrealistic and no customer those who are buying vehicles worth 30-50 thousand dollar should
not take that much of risk regarding such life saving decisions.
On the other hand, taking the statistics of completely automobile market, the buyers of
TESLA has taken less taste drive compared to the other companies in the automobile industry.
The customers of TESLA have taken about 65% of test drive and on the other hand, 89% of
customers prefer test drive for other brands of vehicles. Even 78% of the model 3 had been
ordered online. According to the car data of TESLA, the model 3 vehicles were in short of
supply, as many customers had to wait for the vehicle. Purely online purchase of Tesla’s model S
large sedan and model X sports utility vehicles had been fewer as per the preference of the
customers. This is one of the important in the sense that consumers prefer the known models to
purchase online they already know.
This is going to have a significant impact on the customer decision-making abilities. On
the contrary, the development of resources that are mainly required to increase online business

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will automatically improve the development of known vehicles. Brand loyalty is important in the
sense that it will be highlighting the importance of brand loyalty. Tesla can make 600,000
vehicles and last year the company sold about 245,000 vehicles and almost 103,000 in 2017.
Through the development of better accessibility will definitely increase the vehicle operation of
the company. This is important aspect and one of the important strategies because of the fact that
through the development of better resource will allow the company to increase the valuation of
their sales of vehicles. However, Tesla website is showing the fact that it contains about 130
stores and galleries and the consumer can check the cars but will not be able to use the car due to
some local laws and regulations.
On the other hand, the price of model X decreased to US$35000 from US$ 45000. This
is important in the sense that through the improvisation of better resource development it will be
highlighting the importance of better management from the government as well as the private
level. This is important in the sense that TESLA will be highlighting the importance of better
improvement in the economy. It is highly important for TESLA to bring in improvement in the
management system that will automatically allow the consumers to increase the online purchase
of the cars through portals and websites. In order to increase the versatility of the whole
transaction process that will automatically improve the development of resource and will be
mainly willing to increase the business expansion. Through the improvement in the economy and
the significance of the online business, TESLA is mainly going to increase their revenue from
the sales of vehicles.
The case study is important in the sense that TESLA is going to launch their online
business and through this business, they will be aiming to increase their business in the
international border too. Through the improvement in the online technologies, the improvement

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in the online selling of cars will be aiming to increase the online customers. This is important
aspect for the development of their business, as they will be aiming to increase the resource
distribution. They are aiming to increase the development of the business and they are claiming
the fact that through the involvement of resource.
Through the incorporation of better technology will allow the incorporation of better
involvement of stakeholder’s participation. This is important in the sense that through the
development of online business, the economy is going to indulge the improvement of the
resource development. This is one of the important scenarios in the sense that in order to get the
benefits from the development of resource will allow the companies to increase their resource
development. Through the online business portal, the required level of the development for
required level of the improvement in the economy will bring the effectiveness in the technology
that will be helpful for the improvement in their strategy.
Scenario 3: Renewable Energy Subsidies -- Yes Or No?
In most of the developed nations, subsidizing the renewable energy is one of the
important concepts. Most of the developed nations are spending on total subsidies for renewable
goods and the amount of spending is about $40 billion every year. In the modern world about
80% of the energy is consumed from non renewable sources in the form of coal, oil and
petroleum and 20% comes from the renewable source of energy (Asarta et al. 2017). By 2040,
about 40% of the income will be coming from natural gas and hydrocarbons. This is quite
important in the sense that this is important aspect in the sense that it will definitely allow the
developed nations to increase the development of trade and commerce. On the other hand, the
introduction of subsidizing policy will definitely allow the economies to increase the amount of
FDI within the economy. Even countries in the form of China and India are focusing on the

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provision of subsidy in the renewable resources. Through the importance in the development
procedure, the improvement in the economy will reduce the price of the wind energy and
demand will increase by huge energy.
In the modern trade and commerce, one of the most highlighted issues that have popped
up in Australia is the huge rate of reduction in the subsidy mostly in solar and wind energy. The
Tirades that are associated with many wind and solar energy has completely forgone the amount
of subsidy. Most of the wind energy projects do have a long contract of about 12-15 years and
they are known as power purchase agreements. According to most of economists the valuation
and price of the projects becomes zero once the plant is completed. Some of notable wind energy
projects are putting zero value to their LDC’s and they are 530MW Stockyard Hill wind farm,
the 200MW Silverton wind farm, and the 470MW Cooper’s Gap wind farm. Most of the
economists argue that all the renewable resources can be developed and operated at
$55-70/MWh and they do not need any kind of government subsidies. On the other hand, the
price is so high because of the fact that supply is lacking behind the demand of the economy
regarding the energy consumption in the global level.
Provision of subsidies in the wind energy is taking away the wind and solar energy from
the best possible sites. Since the government is providing the subsidy, thus it is required for the
project sites to launch their projects in the chosen sites. The subsidy costs of about $2.3 billion
are not helping the development of the project to deliver in correct place and they are not giving
their hundred percent production rate (Theaustralian.com.au, 2019). In some regions, the
transmission network is not helping growth of the project and in sometimes the generators are
having huge constraint.

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The development of the business is mainly going to increase the FDI in the renewable
energy, subsidizing them will increase the government revenue, and social benefit is going to
increase through the resource development process. It is highly important in the sense that
consumer will also face deadweight loss as the subsidizing will not only bring the improvement
in the economic sectors but will also increase the amount of investment. On the other hand, using
the wind power and solar energy will be willing to incorporate the development of government
investment. In US, in 2017, $18.4 billion was spent on energy subsidies; $11 billion of that went
to renewable energy and $3 billion to energy efficiency. U.S. energy subsidies per megawatt
hour in 2019 would be $0.5 for coal, $1- $2 for oil and natural gas, $15- $57 for wind and $43-
$320 for solar. This is truly going to increase the development of resources that will bring in
cultures and policies of the government that will increase the development of performance of
economy. Through the improvement in the subsidising of wind energy will allow the economy to
invest freely that will not only induce the development of resource gap and will increase the
production rate of these renewable energies and they will be aiming to increase the important
aspect in the sense that it is important to use the development of the resource. Research found
that 7,000 deaths could have been avoided over a 10-year period through the increased use of
wind and solar energy. Further, each kilowatt-hour of solar generated 4.0 cents of air quality and
climate benefits.

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