BCO115 Microeconomics Assignment Summer I 2021 Professors Jo

BCO115 Microeconomics Assignment Summer I 2021professors John We

Choose one of the three companies: Inditex, Samsung, or Tesla. Use the supply and demand model to explain the prices and quantities of the goods provided by your chosen company, including textual and diagrammatic explanations. Identify the main factors affecting this market and how they influence supply and demand, supported by diagrams. Explain the elasticity of supply and demand for the good.

Answer the following theoretical questions based on Week 3 to Week 8 content: a) Explain different market structures with graphs and verbal explanations, providing specific examples. b) Use Porter’s Five Forces to analyze the market competitiveness and identify the appropriate market structure. c) Analyze the externalities caused by your company's supply chain production and suggest ways to compensate or reduce these externalities.

Paper For Above instruction

Microeconomics is a vital discipline within economics that examines how individual agents—such as consumers, firms, and industries—make decisions regarding resource allocation and market interactions. In understanding the market dynamics surrounding companies like Tesla, Samsung, and Inditex, the application of supply and demand analysis becomes essential to understanding pricing mechanisms, quantities traded, and overall market equilibrium. This paper explores these concepts in depth, supported by diagrams and theoretical frameworks, alongside analysis of market structures, competitive forces, and externalities.

Part A: Supply and Demand Analysis of Tesla's Market

Choosing Tesla as the subject of analysis, we first utilize the supply and demand model to explain the price and quantity of electric vehicles (EVs) in the current market. The demand curve for Tesla’s EVs slopes downward, indicating that as the price decreases, the quantity demanded increases. Conversely, the supply curve slopes upward, reflecting that higher prices incentivize producers to supply more vehicles (Mankiw, 2020). The intersection point signifies the market equilibrium, where supply equals demand, determining the market price and quantity exchanged.

Several factors influence this market. Technological advancements reduce production costs, shifting the supply curve outward, leading to lower prices and higher quantities (Hao & Banerjee, 2020). Increased consumer awareness of environmental benefits shifts the demand curve outward, raising both price and quantity (Zhou et al., 2021). Government policies, such as subsidies or tariffs, also significantly impact supply and demand dynamics. For instance, subsidies lower effective prices for consumers, increasing demand; meanwhile, tariffs on components can raise production costs, shifting supply inward.

Diagrammatically, these shifts are represented by outward or inward shifts of supply and demand curves. For example, a technological breakthrough shifts the supply curve rightward, decreasing prices; increased environmental concern shifts demand outward, raising prices and quantities (Varian, 2014). The elasticity of demand for Tesla EVs is somewhat elastic due to the availability of substitutes from traditional auto manufacturers and other EV brands, meaning that percentage changes in price lead to larger percentage changes in quantity demanded (Kumar & Srinivasan, 2020). Conversely, supply elasticity reflects producers' capacity to increase output in response to price changes, which is moderate for Tesla as production capacities expand.

Part B: Market Structures, Competitive Forces, and Externalities

Market structures describe the competitive environment within which firms operate. Perfect competition features many buyers and sellers, homogeneous products, and free entry and exit, exemplified by small-scale local markets (Mankiw, 2020). Monopoly exists when a single firm dominates the market, such as local utility providers. Oligopoly involves few firms with considerable market power, akin to the smartphone industry with Samsung and Apple. Monopolistic competition combines many firms selling differentiated products, like fast-food chains.

Tesla operates within an oligopolistic market structure, competing with other major automakers such as General Motors and Ford. Porter's Five Forces analysis reveals a highly competitive industry: the threat of new entrants remains significant due to the high capital costs but is mitigated by technological barriers; bargaining power of suppliers is high due to specialized batteries and components; bargaining power of buyers is increased by alternatives from traditional automakers; threat of substitutes exists from public transportation and traditional vehicles; industry rivalry is intense, with continuous innovation.

The supply chain's externalities include environmental pollution from battery production and resource extraction, such as lithium and cobalt mining. These externalities impose societal costs not reflected in Tesla's prices, leading to negative externalities like ecological degradation. To mitigate these externalities, Tesla could adopt sustainable sourcing practices, invest in recycling technologies for batteries, and engage in carbon offset initiatives. Implementing stricter environmental standards and participating in corporate social responsibility (CSR) programs could help internalize external costs, aligning corporate actions with societal welfare (Nelson, 2020).

Conclusion

Analyzing Tesla's market through the lens of supply and demand provides crucial insights into pricing and quantity dynamics, driven by technological, policy, and consumer factors. Understanding market structures and competitive forces further clarifies Tesla's positioning within an oligopolistic industry fraught with externalities, notably environmental impacts. Addressing these externalities through sustainable practices is vital for aligning business growth with ecological preservation, highlighting the importance of integrating economic analysis with environmental responsibility.

References

• Hao, H., & Banerjee, S. (2020). Electric vehicle market dynamics and policy implications. Journal of Sustainable Transportation, 14(3), 223-234.
• Kumar, S., & Srinivasan, R. (2020). Elasticity of demand for electric vehicles: Evidence from the automotive market. International Journal of Economics and Business Research, 19(5), 550-565.
• Mankiw, N. G. (2020). Principles of Economics (8th ed.). Cengage Learning.
• Nelson, P. (2020). Externalities and sustainable innovation in the automotive industry. Environmental Economics, 31(2), 128-142.
• Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach (9th ed.). W.W. Norton & Company.
• Zhou, L., et al. (2021). Consumer preferences and demand for electric vehicles: A global perspective. Energy Policy, 151, 112229.