Economics Assignment: Case Analysis of Mobile Phone Growth in India

Question

Task: Write a reflective journal on computer architecture assignment analysing the theoretical concepts captured from the weekly material.

Answer

Case Study Based Microeconomic Concept Analysis
Introduction
The case study considered herein economics assignment has provided a statistical description of the mobile phone growth in India and how it has changed the earnings of the telecom sector in the country. Considering the example of West Bengal the change in demand for mobile phones in the state as well as all over India has been discussed. Furthermore, the example of the usage of mobile phones in Karnataka state has also been mentioned in the case study. The entire analysis has been made based on some microeconomic concepts including the elasticity of demand, economies of scale and revenue concept in the case study.

Analysis
“Elasticity of Demand including Price Elasticity, Income Elasticity and Cross Price Elasticity”
According to the economic concept, it has been identified that the concept of elasticity of demand is essential to apply for maintaining equilibrium between demand and supply. The reason is the elasticity of demand helps to identify the change in quantity demanded as a result of the change in the economic variable. Hence, it can be stated that the elasticity of demand focuses on the trend of change in demand for a particular product. The case study analysis also reveals that the mobile subscriber base has been increased from the year 1998 to the year 2007 due to a decrease in the tariff. Hence, in this case, the demand can be considered as elastic. The economic theory depicts that elasticity of demand can be classified into three categories including price elasticity of demand, income elasticity of demand and cross-price elasticity. In this case, the application of price elasticity of demand can be considered as due to change in the cost of the telecom industry, demand has been changed. The reduction in cost has decreased price per unit of calling and demand of the telecom sector has been developed in India. From the case study, it has also been analyzed that at the beginning stage of the development of the telecom sector in West Bengal, the tariff rate was very high and it had deteriorated the demand. Hence, the change in price has affected the demand and this change can be considered as price elasticity of demand. Based on the application of income elasticity of demand concept, it can be stated that the increase in the income of an individual is essential for developing the usage of a particular product. Hence, there is a direct relationship between the level of income of a person and the demand for a product. The case study analysis also depicts that 5% change in the monthly income of the people of Karnataka has increased the demand for phone service of the extent of 0.63%. Hence, in this case, the demand can be considered as inelastic. The reason is the change in demand for mobile phone service is comparatively much lower than the change in the income of people. Based on the analysis of usage per month, it can be stated that the demand for phone service was maximum in the case of the USA and after India was in the second rank during the year 2008. Hence, the income elasticity of demand has also an effect on the demand for phone service. The concept of the cross-price elasticity of demand focuses on the change in quantity demanded of one product due to the change in the price of another product. This concept is also essential to apply for identifying the demand for various products within the same industry. The case study analysis depicts that the change in demand for fixed phones in Karnataka was developed by 5% due to a decrease in price and it has increased the mobile phone subscription by 0.3%. As in this case, the elasticity is less than1, it can be stated that demand is completely inelastic in terms of change in demand for mobile phones.

“Methods of Measuring Price Elasticity of Demand”
Price elasticity of demand can be measured considering three different techniques including the Arc method, Point method, and Expenditure method. The case study states that the expenditure method has been used to measure the price elasticity of demand regarding mobile phone usage in India. It has been found in the case study that the policy of reducing call rate has been considered for increasing demand. Based on the expenditure method application it is found that price elasticity of demand is elastic regarding the use of mobile phones as 10% price increase has reduced the demand by 21%. In this case, the elasticity of demand is greater than 1 and hence, there is a high elasticity of demand.

“Applying Revenue Concept”
Based on the revenue concept application, it can be stated that the telecom industry in India has moved to a revenue-sharing regime during the year 1999. The revenue sharing concept was important to the Government of India as it has helped to share income among stakeholders and the demand for mobile phones has been increased suddenly. After considering the revenue sharing model, aggregate generated revenue during the year 2004-05 was 867.2 billion INR. The sharing of revenue has improved customer bases as the call rate has become cheaper than the preliminary phase and the incoming call rate has free.

“Applying the Concept of Economies of Scale”
Based on the analysis of the Concept of economies of scale, it can be stated that mobile phone usage has been increased in India as the cost has been decreased significantly. As a huge customer base has been considered in the service, the telecom industry can avail benefits of cost reduction due to large scale investment. Based on the case analysis, it is found that the falling in the call rate has increased the number of subscribers and the benefits of economies of scale have been increased in India.

Conclusion
Based on the summary of the case study and the above analysis of microeconomic concepts presented in the economics assignment, it can be stated that the cheaper rate has increased demand for the usage of mobile phones in India. Furthermore, the revenue sharing regime has helped to increase the profit of the telecom sector and customer base in the country. Hence, the reduction call rate has increased the profit base of the Telecom Industry in India.