Economic Theory and Market Analysis

This assignment provides a comprehensive overview of economic principles, including supply and demand curves, kinked demand curves, and government intervention in markets. It also explores the coevolutionary relationship between technology, market, and government regulation in telecommunications. The assignment includes case studies and real-world examples from reputable sources, such as academic journals and online resources.

TOPIC:
Managerial economics

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
SECTION “A”.................................................................................................................................1
1. Showing the effect of demand curve, supply curve, equilibrium price and equilibrium
quantity with the help of diagram in different event...................................................................1
2. Features of perfect competition market with examples..........................................................4
3. Graphical representation of a point at which a firm should stop hiring the workers in a
perfect competitive market and characteristics of the market form............................................5
Q.4 COMPUTATION OF ELASTICITY..................................................................................1
5.) Explaining four tools available for government interventions to deal with market features.2
5.) Explaining four tools available for government interventions to deal with market features.2
CONCLUSION................................................................................................................................3
SECTION B.....................................................................................................................................5
1. a) Discussing supply schedule and factors affecting supply in the market.............................5
1. b) Perfectly inelastic demand and effect on supply due to technological innovation.............6
2. a) Characteristics of market in UAE telecom industry..........................................................8
2.b) Describing and analysing the pricing policies in oligopoly market.....................................8
2.c) Profit maximization strategy ...............................................................................................9
REFERENCES..............................................................................................................................11

INTRODUCTION
Managerial economics is the practise of applying economic theories to the field of
management. It assists the managers in identifying rational and optimum way of adjusting to
change in the business environment. The present report will cover concepts of effect of demand,
supply, equilibrium price and quantity of various cases, features of perfect competition market,
computation of demand elasticity. The assignment will also highlight different tools that
government could use for dealing with market failures in section A. Further in section B , it will
discuss supply schedule and factors affecting supply in the market. Pricing policies, profit
maximization strategy will be discussed for telecom industry of UAE.
SECTION “A”
1. Showing the effect of demand curve, supply curve, equilibrium price and equilibrium quantity
with the help of diagram in different event.
Demand curve:
A demand curve is can be defined as a way of transforming the information about change
in the demand of a product or services due to occurrence of any specific event (Chow and Niu,
2015). It can also be termed as the graphical presentation of providing information about the
relationship between change in demand of product or services and change in price over a specific
time period.
Supply curve:
Supply curve refers to a graphical representation of showing relationship between cost of
products and its effect on the quantity of supply. In this curve the cost of product is plotted
Equilibrium price
Equilibrium price is the level of price at which the demand and supply of the product and
services become equal (Mandl and et.al., 2015). At this stage, both supplier and consumer of the
product or services gets equal level of satisfaction.
Equilibrium quantity
Same as the equilibrium price, the equilibrium quantity can be defined as the level at
which quantity of product demanded and supplied become equal. In a graphical presentation, the
equilibrium can be found at the point at which both supply curve and demand curve meet.
A) The market for newspapers in Kuwait
Case 1. increase in salary of the journalist
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Case 2. Including a big news event in the news paper.
Interpretation:
Due to first case of increasing the salary of journalist, the cost of the newspaper would
increase which may effect the supply of the newspaper, on the other hand, due to including a
news about a bing event the demand of newspaper may increase.
The point where the demand curve and the supply curve are meeting shows the
equilibrium price and quantity of the newspapers.
B) Market for St. Louis Rams ( a professional football team) cotton T-shirts.
Case 1. Ram win the super bowl competition
Case 2 The price of cotton increase
Interpretation:
The above graph shows that winning the competition by Ram increased the craze of
football t shirts in the market that will increase the demand of the T-shirts. On the other hand,
due to increase in the cotton price, the cost of the firm will increase which may effect the supply
of the product. In the regard, the equilibrium price and quantity of the product.
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C) The market for bagels
Case 1 People realize how fattening bagel are
Case 2 People have less time to make themselves a cooked breakfast.
Interpretation:
Evaluation of the above graph is showing that due to realisation of harmfulness of the
bagel, the demand of the product has reduced. Further, due to lack of time to cook the food for
themselves, the demand of bagel has not effected much even after realising the harm of it.
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Illustration 1:
increase in demand and decrease in supply curve
(source: Diagrams for Supply and Demand, 2018)
Illustration 2:
decrease in demand
(source: Diagrams for Supply and Demand, 2018)

D) The market for Krugman and Wells economics textbook
Case 1 Professor makes it required readings for all of his or her students
Case 2 Printing cost for textbook are lowered by the use of systematic paper
Interpretation:
The present graph has shown that as the professor has make it compulsory to read the
textbook, the demand of product has gone up further, due to the reduction in the cost of textbook,
the supply of Krugman and Wells has also increased.
2. Features of perfect competition market with examples
Perfect competition market is that market in which there are large number of buyers and
sellers that are involved in manufacturing and selling similar or homogeneous type of products
and services.
Features of the perfect competition market are as follows:
 Large number of buyers and sellers : This market is characterised by enormous number
of suppliers and purchasers. All firms are selling similar kind of products to large number
of buyers. The individual contribution to market demand and supply of these buyers and
sellers are negligible to the total market supply and demand.
 Identical products : The product sold under this market is homogeneous I.e. it deals in
only particulate commodity. For example, commodity goods, vegetables and fruits are
considered as homogeneous market.
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Illustration 3:
Increase in demand and supply
(Source: Standard, 2019)

 Free entry and exits : There are no restrictions on entering or leaving the market, a firm
can at anytime enter and exit the trading place. An small vendor can open up a shop of
vegetables and fruits and leave the market anytime it wants to (Azevedo and
Gottlieb ,2017).
 Perfect knowledge of market : Buyers and suppliers have all the necessary information
about the prices of the product at which it is sold and bought in the market. This assist in
bringing uniformity in prices of goods. For instance, people know the average of
vegetables and fruits based upon which trading takes place in this market.
 Absence of transport cost : Another feature of perfect competition market is absence of
transport cost. There should be no or very negligible transport cost for maintaining the
uniformity in the price of commodity. For instance, a supplier incurring too much on
transportation will sell its product on high prices which will not be accepted buyers in
this market and will very easily switch to other seller because there exist only one price
for a commodity (Lamantia and Radi, 2018).
3. Graphical representation of a point at which a firm should stop hiring the workers in a perfect
competitive market and characteristics of the market form
Market form
Market form also termed as the market structure, can be defined as the a nature and
volume of competition available in the market for various products and services (Basu and
Bundick, 2017). The market structure can be of various types like oligopoly market, monopoly
market, natural market, monopoly market, etc. each market form helps the company in framing
the best policies and strategies for the business, as, the market competition of the company
majorly depends upon the type of market structure in which the company is operating its
business activities.
The major characteristics of the market form are as under:
 Number of sellers: It is a major characteristics of market structure. Number of sellers
differs in each type of market forms. For example, in pure competitive market, there
large number of sellers as compare to oligopoly market where there are only few number
of firms that sales the same product or services (Glasserman and Nouri, 2016). On the
other hand, in pure monopolistic market, there is only single seller in all over the market.
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 Number of buyers: It is also a key characteristic of the market forms. Each type of
market structure have different number of buyers. Like, in pure and monopolistic market,
there are large number of buyer. Whereas number of buyers of oligopoly and pure
monopoly market can not be specified. This characteristic effects the policies and
procedures of the organisation.
 Barriers of entry: Barriers are the difficulties that may arise at the time of entering into
any market. Each market have its own barriers for the business. In monopolistic
competitive market, there is small volume of entry (Jensen and et.al., 2016). Whereas, in
the the oligopoly market, and pure monopoly market, a huge amount of berries are
available.
 Amount of competition: The amount of competition is a key characteristic of each
market structure. The business of any firm and its profitability depends upon the amount
and degree of competition of the market in which it is doing its business.
 Harmonisation of products: It refers to a quality of product for being a substitute of the
another product in the market. It influences the amount of competition of the market. In
case of pure competition, each product or services are homogeneous to each other.
Whereas, in the monopolistic competition, the products or services of one firm are
different from each other.
In this regard, it can be analysed that there are several types of markets i.e. market forms.
Each market have its own characteristics that makes them different from each other.
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Q.4 COMPUTATION OF ELASTICITY
A.) Calculation of Jacky's elasticity of demand
In order to find Jacky's elasticity of demand, firstly % change in quantity will be divided
by % change in price. Thus, the calculation are as follows-
New number 10
Original number 8
% Change in quantity -20.00%
New number 3.75
old number 3
% Change in price 25.00%
Elasticity of demand I-20.00%/25.00%I
0.8
Hence, it can be analysed that elasticity of demand has absolute value of -0.8 or 0.8 thus,
Jacky's elasticity of demand is inelastic.
B.) Computation of Katy's elasticity of demand
In order to calculate Katy's elasticity of demand, % change in quantity will get divided by
% change in price. Thus, its calculation are as follows-
New number 40
old number 50

% Change in quantity -20.00%
New number 6
old number 4
% Change in price 50.00%
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Elasticity of demand I-20.00%/50.00%I
0.4
Thus, it is analysed that Katy's elasticity of demand is elastic that is 0.4
5.) Explaining four tools available for government interventions to deal with market features
Market failure:
market failure can be defined as a situation of market in which the market fails to fulfil
the demand of the customers (Perren and Kozinets, 2018). Further, the market failure can also
be termed as the failure of market in attaining a perfect competition of the market.
Government interventions
For the purpose of eliminating the market failure from the country, the government can
eliminate or control the market failure with the help of making effective policies for the market.
In this regard, the government can use the following tools:
5.) Explaining four tools available for government interventions to deal with market features
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 Taxes and subsidies:
A subsidy is the type of payment which done by government to their supplier in order to
reduce the cost of production and to encourage them for increasing output so that resources are
sufficiently available in the market. Government always tries to engage market inequalities with
the regulation and taxation. This will help them to generate flow of money in economy by which
there will no shortage in availability of resources. For example: government charge tax on the
producer on the goods which they sales in market. Further, producer charge such tax from
retailers and retailers from consumers by which overall revenue in market gets generated.
 Ceiling price: In a monopoly market, the firms can set the price of their products as per
their choice. It can lead in failure of the consumers to buy the products (Mazzucato,
2016). The government can reduce the monopolistic price by providing the ceiling price
of each product of the monopolistic market. This tool of government can help it in
providing
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Illustration 4: government intervention
(source: Analysing and Evaluating Government Intervention in Market, 2018)

CONCLUSION
From the above analysis it can be concluded that demand curve, supply curve,
equilibrium price and quantity are the graphical representation in which change in demand,
supply are shown along with their relationship with the price and cost of the product or services.
It also provides some example of showing the change in demand and supply of the product in
various situations. The study has also concluded that a perfectly competitive market have various
characterises each business of the market need to frame their policies as per the characteristics of
the market. The market failure can be arisen due to various reasons, the government can
effectively control the market failure, by using various tools.
Further, the study has also concluded that there are numerous factors that have impact
over the supply of the product of company. The demand of the product gets change due to
change in the equilibrium price and quality of the product in a perfectly inelastic market. In
addition the study has also concluded that the telecom industry have strong policies and
procedures as to survive in the competitive market effectively and each type of market needs to
frame different profit maximization strategies for the purpose of generating maximum profit
from the market in an effective way.
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 Government Expenditures: Government expenditures play as a major intervention while
dealing with market failure. The expenditures allow the government to track and analyse
the important costs and the places where it is spending its most of the money. These
expenditures allow the government to understand if the incurring costs are high or extra.
The times when cost is high than usual than governments make sure they are even. This
is one of the easiest approach in dealing with market failure and its outcomes. The
expenditures done by the government are also one of the easiest ways to track down the
market happening and what are the core reasons behind the market failure. These tracking
later help the government to understand and analyse these factors beforehand when such
situations occurs in the future. Regulations and Control: Strict regulations and control is another tool that helps the
government of Kuwait in dealing with market failure. Putting on regulation allow the
government to get access to market situations and make it work as per the needs of
government and its people's requirements. Control ensures that there's not a lot of
freedom is provided to the market situations where there is chance of its failure. It
ensures that the market is working as per the set needs of the government and there are
none of the pitfalls left that can cause market suffer. Along with it, better control ensures
a good reputation of the country and its economy's growth.
 Statuary Information/Labelling: This tool is used when there is imperfect information
on the goods sold or there's a need to correct the market provisions. In case of wrong
information provided by the sellers the public often faces situations that can impact the
government's advantage and can cause market failure. The usage of statuary information
and labelling allows the government of Kuwait to make sure that market failure is not
occurring more often. Also, it helps the government to tackle the situation well without
facing large damages and profitability issues. Another importance of statuary information
is that it is safe and work best in providing information to the people of the country. This
approach is used by most of the government when there is a market failure related to the
consumption of goods and services which more often relates with public health discipline
and can cause immediate market failure if not addressed well.
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SECTION B
1. a) Discussing supply schedule and factors affecting supply in the market
Law of supply states that when price of a product falls, its supply decreases and vice
versa, other factors remaining constant (Cooter and Ulen, 2016).
A supply schedule can be described as a table that reflects the relationship between price
of a commodity and quantity supplied. There are two kinds of supply schedule :
 Individual supply schedule : Show the relationship of price and quantity supplied of an
individual manufacturer or firm.
 Market supply schedule : It reflects sum total of supply curve of all the firms in market.
An example is stated below that shows the supply schedule and supply curve.
Illustration 5: Supply schedule and Supply curve
(source:demand and supply:how prices are determined in a market economy, 2019)
From this, law of supply could be easily understood where it can be clearly seen that as
prices fall down, quantity supplied also decreases and vice versa. The supply curve has a upward
slope that shows prices increases, quantity increase. Thus, it can be said that supply and price has
direct relationship.
Factors affecting supply in the market :
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 Price of the commodity affects the quantity supplied as prices go higher supply also
increases and vice versa.
 Cost of production determines the quantity supplied in market. If cost of production rises,
supply will decrease and fall in cost would increase the supply of commodity (Karl,
CASE, OSTER and SHARON, 2019).
 Technology is another factor affects supply in market. Advancement in technology
increases the production and decreases the cost of production that leads to increased
supply in the market.
 Better infrastructure such as sufficient transport facilities increases supply of commodity
 Natural climatic conditions affects the supply of a commodity. For example, quantity
supplied of agriculture goods increases in monsoon period and vice versa (Bade and
Parkin, 2015).
 Factor prices such as prices of raw materials, labour, machines etc., when increases leads
to decrease in supply of commodity.
 Government policies such as taxation policy, industrial policy etc. For example, high
corporate tax would decrease the supply of a product in market and when tax rate is low
supply increases.
 Prices of related goods influence market supply. For instance, increase in price of Tea,
would make the manufacture of Tea and coffee to increase the supply of tea rather than
coffee (Fine,2016).
1. b) Perfectly inelastic demand and effect on supply due to technological innovation
Perfectly inelastic demand refers to a situation where increase or decrease in the prices of
commodity does not affect the demand of a product. For example, change in the prices of petrol
would not increase or decrease the demand for it in the market. Demand remains constant.
As per the question, the supply doubled due to the technological advancement. This is
because of the fact of technology increases the productivity and reduces the cost of production
which eventually leads to increase in the quantity supplied in the market. So, when demand is
constant and supply is doubled, the prices of the commodity will be decreased in the market. And
as per the law of the supply, supply must be increased when the price rises. In this situation , if
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the supplier is supplying the products at constant demand, its profitability will be reduced as
increased supply will reduce the prices of the commodity.
So, supplier should either supply the products as per the quantity demanded in the market
by restricting the excess supply or it can rise its products prices for reaching the equilibrium
stage in the market. This would help the supplier in achieving maximum profits possible.
Illustration 6: Demand -supply curve
( Source : Demand and Supply, 2019)
From the above graph, it can be seen that demand is same while supply has increased.
This has accordingly changed the equilibrium level in the demand supply curve. D1 is the
demand curve and S1 is the supply curve, S2 shows the increase in the quantity supplied of the
commodity. Earlier the pointy of equilibrium was (25,6) say point A and after the increment,
equilibrium is at (30,5) say point B. So, it is clear from the graph that supplier is getting less
revenue as price got decreased due to excess supply in the market.
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2. a) Characteristics of market in UAE telecom industry
There are different types of market that exists in the environment such as oligopolistic
market where there are few sellers but large number of buyers such as car industry.
Monopolistic market in which large number of buyers and sellers exists but do no trade
homogeneous products. Differentiation is one of the characteristics of this market. Monopoly
market where there is generally one firm providing a product or service and number of buyers is
enormous. The company controls the prices in the market, it is market maker. Lastly, perfect
market competition in which large number of buyers and sellers exits that deals in homogeneous
products (Penn, 2019).
UAE's telecom industry falls under the category of oligopolistic market because:
 There are few firms operating and providing products to large number of buyers.
 The move of one firm significantly influence the prices of other firm. For example,
Virgin telecom brand will be affected when a established firms changes their prices, it
will also have to adjust its price.
 There were barriers which government unveiled and allowed private firms to enter and
plays freely. However, the TRA still regulates the sector and Virgin telecom would be
required to comply with all the regulations of the authority. Barriers also involves high
capital expenditure, licenses etc (Assistant, 2018).
 Competition is very high which is the reason why move by one supplier affects the other.
 There is lack of uniformity because private telecom sector have more advanced
technology and distribution channel than public sector undertaking that causes the reason
for variances in prices.
2.b) Describing and analysing the pricing policies in oligopoly market
Firms in the oligopoly are highly interdependent on each other in the terms of pricing
policies. Changes in the price of one firm forces other firm to change its price. This is because in
the event of not making adjustments, firms ends up losing their market share to others players.
This is the reason why each producer resist changes in the prices. The objective of oligopolistic
firms is to maximize profits. For instance, if virgin telecom lowers its prices in the future, every
other firm in this market will follow the steps and it will lead to lower productivity for all the
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telecom companies in UAE. Such regime has made the oligopoly, rigid price market (Azevedo
and Leshno, 2016).
Alternatively, telecom brands in the market can form a cartel in which each firm agree to
fix prices or to segment the market amongst themselves. This cartel model, however, eliminates
the competition factor in the business environment that in some way restricts the growth of these
companies.
Price discrimination policy cannot be used by the firms in this market due to the
availability of firms offering similar utility products. This policy is suitable for monopoly market
where a producer charges different prices from different customers.
2.c) Profit maximization strategy
Profit maximization strategy where the ultimate aim of the telecom brand is to earn
higher profits. The objectives of firms is to take pricing decisions that can generate the maximum
revenue for them. For example, in the event of collusion of big and dominant firms in the market,
then there will be a certainty of output of each other. This will permit them to maximize their
revenue by manufacturing the quantity of commodity where marginal revenue equals the
marginal cost just in the case of monopoly market (Indounas, 2018).
In the case where is no cartel or collusion, no firm knows the output of other which leads
to uncertainty. Then in such cases, marginal revenue gets uncertain and a kinked demand curve
is formed. By lowering prices of commodity, the marginal revenue curve drops which creates a
gap. This is because when a firm lower its prices below the prevailing level, other will follow
and if it rises prices other will not follow. This leads to craetion of kinked demand curve in
oligopoly market structure.
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Illustration 7: Kinked demand curve in oligopoly
( source : Kinked Demand Curve, 2019)
From the above graph, it can be interpreted that p is the price prevailing in the market,
firm manufactures and sell OM quantity of commodity and upper segment represents is elastic
and lower segment is relatively inelastic. The difference between the elasticities is because of
assumption that says ; when a firm lower its prices below the prevailing level, competitors will
follow and if it rises prices they will not follow.
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