Economics Assignment: Mobile Demand Elasticity in India
Question
Task: Write a well-structured economics assignment analyzing the case of “Mobile Telephony in India: Would Cheaper Rates Bring More Profits?”.
Answer
Introduction
The case study “Mobile Telephony in India: Would Cheaper Rates Bring More Profits?" undertaken in this economics assignment is about the analysis of mobile demand elasticity in India. The context of elasticity is about the responsiveness of quantity demanded due to change in its price along with the price of other related goods and the income of its consumer as well. However, the call rates are high and 16 Indian Rupee per minute in the year 1995, but it reaches its lowest level in 2008, which was 1 Indian Rupee per minute. Moreover, the subscriber base was 0.03 million in 1995, which reached 346.9 million in 2008. This made India come along the way in their rendezvous. That's what they call it the revolution in the mobile telephony. But there seen a rapid decrease in the prices and the prices of the handsets. This gives a boost to the mobile telephone sector. This is all because Indians had responded well to such a decrease. This will lead to an increase in demand. Also, the cast study indicates that the expansion of the volume is more as compared to the decrease in prices. Lastly, to further decrease the call rates will then ring the revenues for the telephone sector, and it remains the open-ended issue.
Analysis
From the given case study, it is revealed that the applicability of the microeconomic concepts in the given case. However, the law of demand emerged in the case, like with the decrease in the prices of the handset, the quantity demanded has increased. The case study also indicates that there is an interesting linkage between the different kinds of elasticity of demand, which leads to the changes in revenue due to having the impact of elasticity on price. This could help to understand the business fulcrum to shows the viability of the business.
Different Types of Elasticity
However, when there is a drastic decrease in the price, the following three types of changes occur in the mobile industry. There is the following type of demand elasticity due to the decrease in prices.
• When the elasticity = 0, the demand curve is vertical, and the consumer's sensitivity, in this case, is none due to change in the prices of handsets. This is the case when there is no change in demand when the prices are changed. But it does not prevail in the given case.
When Elasticity <1, This is the case when the demand is relatively inelastic, where the people respond less like the percentage change in the demand is less as compared to the percentage change in the prices of the mobile. People will respond less to change in the prices of mobile. This will increase revenue.
When the Elasticity = 1, the demand curve will be intermediate, and consumer prices of the handsets of the phone will be intermediate in this regard. Here the proportionate change in the demand is equal to the proportionate change in prices.
When Elasticity > 1 demand curve will be relatively high, and the consumer's sensitivity towards the prices of the handsets will be high. This shows that the proportionate change in the demand is more than the proportionate change in the prices. This is perfectly true in the case of mobile. This is the case where we can say it the relative elastic demand. This will decrease revenue.
When the demand curve is infinity, this shows the extreme and consumers' sensitivity towards the prices of phones will be at an extreme. In this case, the small decrease in prices will cause a drastic increase in demand, which shows that the demand is perfectly elastic.
Price Elasticity of Demand
Price Elasticity of demand, which is the responsiveness of the demand in mobile phones due to the change in prices. As the percentage change in prices decreases, the demand will increase. In the given case study, it is revealed that price elasticity is usually negative, and the same is the case in mobiles. For the mobile industry, it is the most important and useful information for the marketing plan, but it implies the finance and marketing aspect too.
Income Elasticity of Demand
Income elasticity is the responsiveness of the demand due to a change in the income of the consumer. In the given case study, it is revealed that the demand for mobile phones will also increase due to the change in the income of consumers. Undeniably on such a mobile phone will become a luxury.
Cross Price Elasticity of Demand
The scenario prevails when the responsiveness of change in the prices of one good due to changes in the prices of other goods. While in the given case study, this implies when there is a positive between the fixed and shows that there prevail the substitutes.
Methods to measure the Elasticity
Here are the four methods to measure the demand elasticity which are:
• Point method
• Percentage method
• Expenditure method
• Arc method
The current case study reveals the method of the percentage method in which the percentage change in the prices has been causing to change in demand for mobile phones.
Revenue Concept
After assessing the case, it is observed that mobile phone demand in India is price elastic which indicates that if they've seen an increase of price by 10 percent the demand will decrease by 21 percent for which the company focuses to decrease the tariffs which then affected the revenue of the company. This results in a decrease in the average revenue. But the total revenue has increased.
Economies of Scale
Economies of scale can be achieved by a decrease in the prices and increase in the subscribers and lead to increase profits.
Conclusion
Hence, it is concluded from the above discussion on economics assignment that the demand is always responding to the prices, but how much it will respond can only be achieved by the elasticity concept, which is discussed in the upper sections. But the decrease in prices lead to high demand and tends to generate more revenues. However, the percentage method of elasticity is applicable here.While the economies of scale also are achieved.
