Economics Assignment: Kenyan Maize Market and Retail Challenges

This economics assignment addresses several key concepts. It begins by examining price ceilings and price floors in the context of the Kenyan maize market, exploring their effects on supply, demand, and consumer welfare. The assignment then delves into anti-competitive practices, defining them and analyzing their impact on market competition, consumer satisfaction, and economic performance. Furthermore, it investigates non-price factors influencing supply, such as input costs and production techniques. Finally, the assignment explores the concept of elasticity of demand, differentiating between elastic and inelastic demand and discussing their implications for revenue generation. The assignment provides a comprehensive overview of economic principles, market dynamics, and their practical applications.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of Student:
Name of University:
Author’s note:

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Table of Contents
Answer: 1.........................................................................................................................................2
a)..................................................................................................................................................2
b)..................................................................................................................................................3
c)..................................................................................................................................................4
Answer: 2.........................................................................................................................................5
a)..................................................................................................................................................5
b)..................................................................................................................................................5
c)..................................................................................................................................................6
Answer: 3.........................................................................................................................................7
Reference List..................................................................................................................................9

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Answer: 1
a)As the parliamentarians in Kenya felt that the prize of maize is too high and unaffordable for
the low income groups, the Kenyan Government has the option to set a limit of maximum prize.
A maximum price is set below the equilibrium price level which acts as a legal limit to help the
low income earning groups from a high price. The strategy is known as price ceiling. Keeping
the price below the equilibrium level. There occurs an excess demand due to shortage of supply.
Demand for the good will go up due to fall in prices. However, suppliers are unable to produce
that much quantity at lower price

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Figure1: Price is set below the equilibrium level in case of price ceiling
Source: (Posner, Scott Morton and Weyl 2017)
Price goes down from PE to PC and shortage is measured by the amount QSQD. Demand will
overtake supply causing a lot of people to remain unsatisfied by not using the product. Producer
surplus falls drastically for selling at lower price. This shortage can be resolved by government
rationing as the consumers has to stand in a queue to get the maize and having a legal proof
showing income level, is mandatory for the consumers. If Kenya applies price ceiling, then they
have to do rationing otherwise will lead to immense shortage and is not an effective policy.
b) A maximum price is known as the price which is set above the equilibrium price known as
price floor as opposite to price ceiling. By setting price above the equilibrium level suppliers
want to produce more of the good as they can now sell it at a high cost. The production is set at
the level where price floor intersects the marginal cost. Customers unable to buy the good at that
price shift their demand effectively by shifting to other substitutes leading to a fall in demand.
This creates yet another problem of excess supply and shortage of demand.

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Figure2: Price is set above the equilibrium level in case of price flooring
Source: (Posner, Scott Morton and Weyl 2017)
Above diagram represents the market conditions due to policy of price flooring. Pe is the
market equilibrium price with equilibrium quantity Qe. Now when price increases to Min price,
quantity supplied Q2 exceeds quantity demanded Q1, showing an excess of Q1Q2.Although the
problem of high price gets intensified, the fall in demand can solve the issues regarding high
price. Moreover, Kenya imports maize from other countries due to low production caused due to
draughts. A higher price will lead to fall in imports and consumers who are willing to buy at
increased price, buy it from domestic market. Yet, a dead-weight loss is faced by the economy
due to loss in consumer surplus (who does not buy the good) and producer surplus (due to lower
demand).
c) Non price factors that affect the supply of firms negatively are as follows
1) Price of related goods- Price of substitute goods such as wheat and rice which are used in
place maize. A fall in price of price of substitutes raises the supply of maize because as price of
rice and wheat goes up, selling maize is more profitable.
2) Availability of inputs- Maize has been a problematic staple as it is hard to obtain. The quantity
of maize required for consumption is estimated to be three million and maize production is lower
than that. Kenya is deficient in oil seed cake which makes the production cost high. A lower
supply is equated with a higher price. Furthermore, occurrence of droughts makes the land
infertile for production.
3) Production techniques - 45 percent of Kenya’s population is engaged in farming. The scenario
in Kenya did not improve much because the productivity of Kenya is quite low. Farming is done

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using inefficient techniques leading to damage of fertile land. Sustainable land management
techniques has to be developed to increase the production per person (Menzio and Trachter
2015).
Answer: 2
a)Anti-competitive practices are those that restrict or decrease the trade practices in order to
improve competition so as to benefit consumers. In order to do achieve a stable competition level
several measures are taken. Bid ragging is opted which specifies the amount to bid by
competitors or suppliers so that companies cannot deal with low investment and agreement. Joint
agreements are made by to lower the market capitalization. Exclusive dealing strategy is
optimized to purchase the good from the contracted dealer and refuse to deal with new dealers.
Territories are divided by respective firms to lower competition by coming in their way (Mankiw
2014). Collection of bribes or spying goes on in the market. Dumping is performed rigorously
because it force competitors out of the market by intentionally making a loss by the sale of
particular product or service.
b)Fixing high price in order to raise revenue and influence the market power are limited in anti-
competitive practices. The sole companies agrees to an agreement to opt for similar goals and
share dividends among each other. Anti-competitive practices are accused to effect the economy
negatively by generating a social cost. Policies of anti-competition may benefit producers in
terms of huge revenues, yet it lowers the satisfaction of consumers. Businesses having huge
capital, investment and government support stays in the market and the rest of the small
institutions has to leave and shut down their businesses. It corrupts the business practices and
allow illegal activities to decrease the economic performance as they restrict the development of
entrepreneurial capabilities.

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Buyers are forced to buy goods at a high price which may not pose a threat in short run.
However, in the long run people lose their purchasing power and shift their demands relatively.
People face a trade-off between price and quality. Oligopolistic firms enjoy the gains from
economies of scale that evades away the smaller firms. These firms requires a high level of
investment and profits generated are often low to survive in the market. Markets are unable to
run efficiently as more participants enter and limit the revenue earned leading to a wide range of
products to be supplied to customers with lower price. The plausible effect is seen as a fall in the
GDP (Gross Domestic Product) of the firms and economy as a whole (Kreps 2013).
c)The retail industry faces ample amount of challenges from its wholesalers and agents who are
concerned with the service and products outstretching the consumers.
 The level of investment- The decision regarding the amount to invest and in which
area to invest denotes the return on investment. Firms might think of expanding their
geographic area while retailer look for investment in the advertise section.
 Choosing the right brand partner- Retailers want to choose a brand where selling
becomes profitable and the partner stays with them for a long time. Goals of the
company must match with the channel partners. When companies fail to choose their
brand effectively, effects can be seen as fall in revenue and poor image in the market.
 Collection of revenues- Sourcing the right policy to collect the revenues generated is
efficient for firms’ profit. Companies engage in transfer pricing policy to push goods
for retailers and retailers are demanded to pay them within the credit period
(Schneider 2013).

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 Management of inventory- Retailers are involved to gather higher market share by
citing a proper inventory. They repeatedly face challenge to build strategies that
develop the store management, market trends, corporate retailing and job vacancies.
 Advertising and visual display- The key role is to keep the product attractive and
make the product properly visible to all sectors of the economy to interest in the
minds of people regarding the product.
Answer: 3
Elasticity is defined as the amount of change in quantity of a commodity due to change in
the price of the commodity. The change in demand of a good is dependent on whether the good
is elastic or inelastic. Elastic demand means that a small change in price causes huge change in
quantity demanded.
Whereas inelastic demand describes that a small change in price does not change the
quantity demanded. Generally daily consumable goods have inelastic demand as they are
necessities and luxury goods have elastic demand as measured by its responsive degree. The
curvature of demand curve varies according to the concentration of demand with price.

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Figure3: Elasticity of Demand
Source: (Cowell 2018)
With elastic demand such as yacht, jewelry, designer outfits, branded clothes, a higher
price leads to a fall in revenue as demand falls drastically. Total revenue earned is more for
goods having an inelastic demand for consumable goods like tea, shampoo, clothes and food
items. Thus, selling goods which have inelastic demand is more profitable in comparison to
goods with elastic demand. Yet, if the good with elastic demand has high brand value, then
selling the good is profitable.

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Reference List
Cowell, F., 2018. Microeconomics: principles and analysis. Oxford University Press.
Kreps, D.M., 2013. Microeconomic foundations I: choice and competitive markets (Vol. 1).
Princeton university press.
Mankiw, N.G., 2014. Principles of economics. Cengage Learning.
Menzio, G. and Trachter, N., 2015. Equilibrium price dispersion with sequential search. Journal
of Economic Theory, 160, pp.188-215.
Posner, E.A., Scott Morton, F.M. and Weyl, E.G., 2017. A proposal to limit the anti-competitive
power of institutional investors. Antitrust Law Journal, forthcoming.
Schneider, E., 2013. Pricing and equilibrium. Routledge.