1.Analyse the Impact on the market for the Indian engineering education of a decrease in the price of engineering education in Australia.
Engineering aspirants in India are seeking overseas education for better education facilities and infrastructure. As the income of middle and upper- class families in India is expanding, a slight reduction in the price of engineering education in Australia would prompt more Indian students to enroll in their engineering programs.
If the average cost of engineering education in India is 15 lakh and Australia reduces the cost of its education from 25 lakh to 20 lakh, the Indian students would choose to study in Australia. There will be a decrease in the demand of Indian engineering education and an increase in the demand for Australian education as a result of a fall in the price.
Figure 1(a) illustrates a change in price of the good causing a movement along the demand curve. It shows that as the price of engineering course reduces from P1 to P2 in Australia, the number of seats increases from Q1 to Q2. The reduction in price of the course, leads to an expansion.
The Figure1 (b) shows leftward shift from D1 to D2 as price remains constant at P1. The graph demonstrates that as the demand for Indian engineering course falls, the quantity is reduced from Q1 to Q2.
The demand for Australian engineering colleges will rise due to the network effect. The engineering students will opt to study in Australia as other individuals have chosen to do the same.
The decrease in the price of the engineering course in Australia increased the real purchasing power of Indian households and made it more affordable to Indian students. This is called as Income effect of a Price Change. The income effect does not deal with a change in household income.
Goods can be categorized into two categories: Inferior and normal.
Assuming that the average income of Indian households has increased, it led to an increase in the demand for costlier substitute’s like- Australia’s engineering education. In such a scenario, Australian engineering education will be a normal good and Indian engineering course will be an inferior good.
Figure 2 shows that as income of Indian household increases from Y to Y1, the demand for Indian engineering education falls from Q to Q1.
As the price of Australian engineering falls, the demand for it will rise. The Australian education is very elastic, as a slight decline in price will increase the demand
Demand of Indian and Australian engineering education in Long-Run
In the long run, the enrolment of engineering students in Australia will continue to increase. To control the demand, Australia will increase the price of its course. On the other hand, India will decrease the price of its engineering course to increase the number of students.
2. Characterize the market structure of mobile telephone manufacturing industry in India. Illustrate with examples.
Mobile telephone manufacturing industry in India operates in a monopolistic competitive market. In monopolistic competition, each firm offers uniqueness in their product and competes for same customers.
The firms focus majorly on product differentiation and make its product different from its competitors in its physical aspect, advertisements, intangible aspects and others.
• The physical aspects of Samsung Galaxy S8 differ from HTC U11 in its size of display, color, design, packaging etc.
• The intangible aspects include provision of premium services such as no cost EMI on phones, loans etc.
• Firms differentiate their products on distinctive packaging and other promotional techniques such as advertisements. The mobile phone companies use advertisement as a technique to inform consumers about physical difference in their mobile phones. The mobile phones such as- Samsung, Apple, Virgin Mobile, HTC and many other brands spend heavily on promotional techniques such as advertisements to aware people about distinctive physical features offered by their companies.
In monopolistic competitive, there are large number of sellers. According to IIM Bangalore and Counterpoint Researchers, there are 61 manufacturing facilities of the mobile phone in India, including Samsung, Asus, Xiaomi, Oppo, Vivo, and others.
These large numbers of sellers hold a small percentage of market share in the industry.
The firms in a monopolistic competitive make independent decisions and do not consider the effect of its decision on the competitors. Each firm can freely set the pricing of their product, without considering their rivals. For example- The launch of a new iPhone model reduces the prices of older iPhone models. The reduction in the price of older models is not caused by any competitor.
In the monopolistic market, the firm is assumed to be profit-maximizer. The firms determine their own profit-maximizing quantity and price. When the firm has decided its profit-maximizing output, it acts like monopoly and charges maximum on a product. Profit maximization occurs at MC=MR, Q is output and P is the price. A profit-maximizing competitor chooses output where MR=MC. Example: Samsung GT-1700 was launched in 2009, it was the first product in the long Galaxy series. The price of the first galaxy series was above Rs.15, 000, much more than the current price.
Figure 1(a) illustrates a situation in which Samsung was earning profits with its original demand curve (DO). The marginal revenue and marginal cost intersected at Point S, in correspondence to Quantity Qo, at demand curve T with price P0. The combination of P0 quantity was above ACC (average cost curve), which means firm was earning positive economic profits. When other firms such as Apple or Nokia developed substitute products, Samsung’s demand curve and marginal curve shifted to left i.e. from D0 to D1 (AR) and MR0 to MR1 . The quantity and price of Samsung galaxy is reduced to Q1 and P1 respectively.