Micro Economics

Micro Economics and Its Applications

Presented by Harihar Pathy, Ravi Kumar, KNV Chinna Rao and Rabi Narayan Mishra

Study on Indian Automobile

Industry

Micro Economics – Objectives of the Presentation

To study application of Micro Economics in Real World Situations

Oligopolistic Automobile Sector Factors affecting Two Wheeler Sector Elasticity of Demand with respect to Automobile Industry Economic Factors attributable to decline of General Motors

in USA

Micro Economics – Definition Definition : Economics is the study of allocation of scare

resources and problems arising directly and indirectly due to scarce resources.

Deals with demand and supply of goods and services Effect of demand and supply with respect to change in

price, change in income etc Elasticity of demand Development of markets

Automobiles Industry

Segmentation of Automobile Industries

Heavy Vehicles ( Truck, Buses, Trucks etc)

Light commercial vehicles

Passenger vehicles ( Cars, Two wheelers)

Break Up of Indian Automobile Industry

76.49

3.60

3.95

15.96

% Share of Indian Automobile 2008-09

Two wheelerThree wheelerCommercial vehiclesPassenger vehicles

Two Wheeler Industry

Nature of Two Wheeler Industry Total size of the industry – Rs. 288 million Total volume 80 million units

Industry dominated by Hero Honda Bajaj Auto TVS Motors

Segmentation of Industry Motor cycle – 80% Scooters – 15% Mopeds – 5% Yamaha - Insignificant Suzuki - Insignificant

Market Break Up of Two Wheeler Industry

Nature of two wheeler Industry

Hero HondaBajaj

TVSYamaha

SuzukiKinetic Honda

0

10

20

30

40

50

Motor cycleScooter

Two Wheelers - Market Share

22

105

5

18

29

43

% Market Share

EnfieldKinetic MotortsHondaSuzukiYamahaTVSBajajHero Honda

Two Wheelers – Market Type

From the above figure it can be seen that more than 80% market share is by three companies i.e. Hero Honda, Bajaj and TVS

Therefore two wheeler industry can be considered as Oligopoly market.

It is seen that few market players viz. Hero Honda, Bajaj and TVS have virtually forcing other players viz. Yamaha, LML, Kinetic etc. out of the market

Two Wheelers – Income Criteria

2005-06 2006-07 2007-08 2008-09

0

1

2

3

4

5

6

7

8

9

10

Disposable Income US $ Million

Income

Two Wheelers – Supply & Demand

2004-052005-06

2006-072007-08

0

10

20

30

40

50

60

70

80

90

ProductionSold

Two Wheelers – Elasticity of Demand

It is observed from the above graph that the production as well as Consumption increased from year to year

Selling of two wheeler is dependant on the disposable income of individual.

Hence, with increase in income the demand of two wheeler has increased, which shows the income elasticity of demand for Luxurious goods.

Micro Economics - General Motors – Case Study

GM was the no. 1 car maker of USA before 2008 Toyota entered into USA market with cheaper new vehicles

with fuel efficiency People shifted to purchase Toyota GM continued producing cars which are fuel in-efficient and

costly Once-popular GM automobiles declined slowly and

continually as Toyota and other Japanese cars won ever increasing share of the automobile market

The number of units manufactured for each of the brands of GM viz. Buick, Cadillac, Chevrolet, GMC, Hummer, Pontiac, Saab and Saturn represented too much output

This situation resulted in the marginal revenue becoming less than the marginal costs thereby resulting in loss for the company.

Micro Economics - Conclusion

Micro Economics plays a vital role in the performance of the economy particularly to individual firms.

In the case study above, we could analyse about Demand & Supply Income Elasticity of Demand Market Structure of Automobile Industry Effect of Marginal Cost & Marginal Revenue in the

case of General Motors in the process of Profit Maximisation.