Вы находитесь на странице: 1из 26

NOTE: U WILL NEED TO LABEL ALL THE GRAPHS AND FIX THE CONCLUSION AS U SEE FIT

CANIDATES NAME: NEFTA BAPTISTE SCHOOL: ST. STEPHENS COLLEGE SCHOOL CODE: 160076 CANIDATES NO: 1600760080 SUBJECT: ECONOMICS UNIT 1 TOPIC: A comparative analysis of the demand for mobile phone service provided by Digicel and B-mobile in Trinidad. YEAR: 2012

TABLE OF CONTENTS TOPIC PG. NO

Acknowledgement ..... Aims and objectives ... Introduction Methodology .. Report . Conclusion .. Bibliography ...

ACKNOWLEDGEMENT
I would like to thank all the people who made the completion of this IA (Internal Assessment) possible. Firstly I would like to thank the students and staff of St. Stephens College for their time and cooperation in completing my questionnaires. Secondly I would like thank my Economics teacher for all her hard work and encouragement in ensuring that my IA was completed in a timely fashion. Last but not least I would like to thank the Almighty God for giving me the patience needed to complete this IA.

AIMS
1. Promote understanding of the basic principles and concepts of economics as they pertain to the tele-communications services in Trinidad and Tobago. 2. Determine the demand for B-mobile phones versus Digicel phones in Trinidad

3. Apply economic theories to the critical issues affecting the demand for B-mobile and Digicel
phones.

SPECIFIC OBJECTIVES
Module 1: Topic 2- Theory of consumer demand 7. Explain effective demand 10. Distinguish between shifts of the demand curve and movements along the curve 11. Identify the factors that affect demand 13. Explain price elasticity, income elasticity and cross elasticity of demand 14. Calculate numerical values of elasticity 16. Assess the implications of price elasticity of demand for total spending and revenue 17. State the factors that determine the price elasticity of demand

INTRODUCTION
With a population of 1.3 million people and significant energy based natural resources, Trinidad & Tobago represents one of the largest markets in the Caribbean. The two major phone companies in Trinidad and Tobago are Digicel and B-mobile which forms a duopoly in Trinidad and Tobago and are in competitive demand Telecommunications Services of Trinidad and Tobago Limited (generally known as TSTT) is the largest telephone and Internet service provider in Trinidad and Tobago. The company, which is jointly owned by the Government of Trinidad and Tobago and Cable & Wireless, was formed out of a merger of Telco (Trinidad and Tobago Telephone Company Limited) and Textel (Trinidad and Tobago External Telecommunications Company Limited). TSTT no longer holds a monopoly in fixed-line telephone services due to Flow introducing a fixed-line service of their own, but their cellular monopoly was broken in June 2005 when licenses were granted to Digicel

METHODOLOGY
During investigations of the analysis of the demand for Digicel and B-mobile phones, both primary and secondary research methods were used to gather qualitative and quantitative data. The data collected provided both validity and reliability. The quantitative methods used were structured interviews and questionnaires. With this there was the opportunity to compare my observations with the answers of the respondents. With the use of structured interviews the response rate was higher than other research methods. Written questionnaires were handed out to a sample frame of 25 students comprising of 15 males and 10 females at St. Stephens College and 15 comprising of 10 males and five females teachers. The questionnaire included 16 closed ended questions and 12 open ended questions which provide qualitative data An advantage of this method is that it reaches a large number of people, providing sufficient information. The questionnaires were handed out via random sampling. For the structured interviews 5 males and 5 females were questioned within the space of 2 days. It was advantageous because the information collected was valid since there was opportunity for the clarification of misconceptions on the part of the interviewer and interviewee. The use of questionnaires and interviews resulted in a high level of reliability and validity which was needed to provide accurate statistical data for investigation. Qualitative data was also utilized

whereby open ended questions were aimed to test objective theories by examining relationships among variables. All findings were tabulated and categorized. Economics and Business textbooks were used for reference as well as the internet and newspaper. This allowed for the opportunity to gather both primary and secondary data. This study therefore incorporated the use of both qualitative and quantitative data. The data collected from the questionnaires and interviews will be assumed to be representative of the wider population of Trinidad.

REPORT
The use of mobile phones has become very important in all facets of our life in contemporary society. Since the use of phones is so important this results in competitive demand between mobile phone providers Demand is a term used in economics to describe the desire of a consumer or a group of consumers, to purchase a particular good or service at a certain price in a given period of time. Melvin and Boyes (2010) define demand as the relationship between two variables; price and quantity demanded, with all other factors that could affect demand being held constant. In economics, the demand curve is the graph depicting the relationship between the price of a certain commodity and the quantity consumers are willing and able to purchase at that given price (Sheffrin 2003). The demand for B-mobile and Digicel mobile phones will reflect how many minutes persons will use the phone for, at various prices. With the aid of questionnaires a demand curve showing price per minute and the corresponding amount of minutes demanded per month by consumers was created.

DEMAND FOR B-MOBILE, MOBILE PHONES

The following table shows how many minutes were demanded per month at various prices for B-mobile, mobile.

Table 1: B-mobile demand schedule

B-MOBILE PRICE PER MIN. OF MOBILE PHONE USE (CENTS)


20 30 40

QUANTITY OF MINUTES OF MOBILE PHONE USE DEMANDED


80,000 50,000 20,200

The demand curve derived from the demand schedule above is shown in Figure 1 below. Figure .1

40

30

20

D 0 20 30 40 50 60 70 80 90

Fig 1: Demand curve showing the price and the quantity of minutes demanded at different prices for Bmobile phones.

Based on the demand curve in Fig.1, at the original price of $0.30 per minute, 50,000 minutes were demanded by customers per month. When price increased to $0.40 per minute, the quantity of minutes

demanded dropped to 20,200 minutes per month. This increase in price thus causes a contraction in demand as shown by the movement along the demand curve from A to B. When price decreased to $0.20 per minute, the quantity of minutes demanded increased to 80,000 minutes per month. This decrease in price causes an extension in demand as shown by the movement along the demand curve from A to C.

DEMAND FOR DIGICEL, MOBILE PHONES


The following table shows how many minutes were demanded per month at various prices for Digicel, mobile phone usage and the total revenue earned in each instance.

Table 2: Digicel demand schedule

DIGICEL PRICE PER MIN. OF MOBILE PHONE USE (CENTS)


20 30 40 80,000 70,600 65,000

QUANTITY OF MOBILE PHONE USE DEMANDED

Demand curve derived from the demand schedule above as shown in Figure 2 below. Figure .2

40

30

20

D
0 50 60 70 80 90 1000 100

Fig 2: Demand curve showing the price and the quantity of minutes demanded at different prices for Digicel phones

Based on the demand curve in Fig.2, at the original price of $0.30 per minute, 77,800 minutes are demanded. When the price increased to $0.40 per minute the quantity of minutes demanded dropped to 56,000 minutes per month. As with the previous scenario there was a contraction in demand from A

to B and when price decreased to $0.20 per minute the quantity of minutes demanded increased to 80,000 resulting in an extension in demand from A to C. The trend in both scenarios is consistent with the law of demand, which states that, all factors being equal, as price of a good or service increases, consumer demand for the good or service will decrease and vice versa ( Dr R Hosein, G F Stanlake, 2005). This inverse relationship between price and quantity demanded also suggests that mobile phone service is a normal good. These are products whose demand varies directly with money income which means that as income increase more is bought of a good and vice versa. In order to further understand the responsiveness of price to changes in quantity demanded the Price Elasticity of Demand can be calculated.

Price Elasticity of Demand is a measurement of the change in quantity demanded as a result of the change in price of the good or service. It can be defined as the degree of responsiveness of quantity demanded to a change in price ( Hashim Ali, Alllan Lutchman, 2004). In order to measure the Price Elasticity of Demand the following formula is used:

PED = Change in quantity demanded Change in price x

Original Price Original Quantity

Based on the data collected previously the PED for B-mobile phones can be calculated when the price rises from $0.30 per minute to $0.40 per minute.

-29800 +.10 x

.3 50000 = -1.8

According to the calculations above the demand for B-mobile phones price is elastic. This suggests that the change in price will lead to a more than proportionate change in quantity demanded. Thus a 1% increase in price will cause a 1.8% fall in the quantity of minutes that consumer will use.

Based on the data collected previously the PED for Digicel phones is calculated when the price rises from $0.30 per minute to $0.40 per minute.

-21800 +.10 x

.30 77800 = - 0.8

According to the calculations above the demand for Digicel phone is inelastic. This suggests that the change in quantity demanded was less than proportionate to the change in price. Thus a 1% increase in price will cause a .8% fall in quantity demanded in the quantity of minutes that consumer will use. Other factors affecting PED is the number of substitutes immediately available since the greater number of substitutes available the higher the PED tends to be. Time also affects PED since if price increases, price elasticity of demand tends to be greater as more time elapses. Income is also a factor since the higher the proportion of consumers income that the price of, the higher is the goods PED. Since the responsiveness of quantity demanded to changes in price has been fully explored the effect of changes in price on total revenue with varying degrees of PED will be examined for better understanding of the concept. PED has important implications for the total revenue of firms. Total revenue (TR) = Price x Quantity sold Table 3: Total revenue for B-mobile phones

Price per minute (cents) 20 30 40

Quantity of minutes demanded of mobile phone use 80,000 50,000 20,200

Total Revenue (TR)

$16,000 $15,000 $8,080

Demand curve derived from the table above with the areas showing total revenue as shown in Figure 4 below Figure .3

40

LOSS

30

GAIN

10

12

13

14

15

16

When demand is elastic, the producer should decrease his price to increase total revenue. The decrease in price will be followed by a more than proportionate increase in quantity demanded of B-mobile phones. The fall in revenue due to a lower price will be more than compensated by the increase in revenue due to the increased quantity sold. As a result the total revenue received will increase (R Powell, 1989).

Table 4: Total revenue for Digicel phones

Price per minute (cents) 20 30 40

Quantity demanded of mobile phone use 80,000 77,800 56000

Total Revenue (TR)

$16,000 $23,340 $22,400

Demand curve derived from the table above with the areas showing total revenue as shown in Figure 5 below. Figure .4

40

GAIN

30 LOSS

20

21

22

23

24

26

27

When demand is price inelastic, the producer should increase his price to increase total revenue. The increase in price will be followed by a less than proportionate decrease in quantity demanded of Digicel phones. The decrease in total revenue due to a fall in a quantity demanded will be more than compensated by the increase in revenue due to an increase in price. As a result total revenue will increase ( Dr R Hosein, G F Stanlake, 2005).

PED is of great usefulness to Digicel and B-mobile firms because when the PED is calculated pricing strategies can be determined to increase total revenue and profit. Supply decisions can also be made by calculating expected changes in quantity demanded when price changes. Pricing decisions can be made by calculating changes it should make in prices to achieve particular sales targets. The extent to which the PED concept is useful to a business is limited by the fact that it is made with a ceteris paribus assumption on: accuracy of estimations of PED is an estimated value and its usefulness will depend on the accuracy of estimations and calculations, past estimates of PED do not necessarily gurantee the same future behaviour of consumers, external factors actions of competitors, govt and other external forces will affect the degree of PED and its usefulness.

SHIFTS OF THE DEMAND CURVE The entire demand curve shifts if the conditions if demand change while the price of the good itself remains constant.

1. Digicel and B-mobile can be viewed as substitutes so Cross Elasticity of Demand (XED) will give information on the responsiveness of the demand for Digicel phones to changes in price of Bmobile minutes assuming that the consumer owns both a B-mobile and Digicel phone.

CALCULATION OF THE CROSS ELACTICITY OF DEMAND (XED) OF B-MOBILE AND DIGICEL MOBILE PHONES.

Cross Elasticity of Demand (XED) measures the degree of responsiveness of the quantity demanded of one good, to changes in the price of another good. The XED of Digicel and B-mobile phones will be measured by dividing the percentage of change in quantity of Good A (Digicel) by the percentage change in price of Good B (B-mobile)

XED= % %

QA PB

Table 5: showing the quantity of digicel minutes in response to changes in price of Bmobile minutes.

PRICE PER MINUTE (CENTS)BMOBILE 20 30 40

QUANTITY OF MINUTES OF DIGICEL PHONE USAGE DEMANDED. 80,000 90,500 10,OOO

So assuming the price per minute of B-mobile phones increses from 20 cents to 30 cents the graph below shows the effect it will have on the quantity demanded of Digicel phones at its original price of 20 cents.

Figure .5: demand curve showing the effect of and demand for Digicel minutes

in price of B-mobile minutes on the

price (cents)

20

70,000

80,000 Q0

90,000 Q1

100,000

Qd (minutes)

According figure 5 above the price of B-mobile minute increase from 20 cents to 30 cents Digicels demand increases from 80,000 minutes of phone use demanded at 20 cents to 95,000 minutes of phone use demanded causing a right-ward shift of the demand curve. This was because assuming the consumer has both types of phones they would begin to use their Dugicel phone more if the price of B-mobile minutes increases Another factor which will cause a shift in the demand cure is increase in income since a consumer will tend to buy more of a product if he/she has more income.

Therefore with more income the consumer might decide to spend more time on the phone.

CONCLUSION Digicel and B-mobile form a duopoly and are in competitive demand, they compete through the use of non-priced competition such as special offers, packages and advertisement.

BIBLIOGRAPHY BOOKS: Alan Whitcomb, Sybile Hamil (2001) Essential Principles of Business for CXC Dr R Hosein, G F Stanlake (2005) Longman Economics for CXC Pearson Education Ltd Edward Bahaw BSc (2007) CAPE Economics Comprehensive Economics for Caribbean Students. Hashim Ali, Allan Lutchman (2004) Comprehensive Economics Textbook for GCE O Level- Federal Marshall Cavedish Education. Mc Cornell R. Campbell, Bruce. L Stanley (2005) Economics: Principles, Problems and policies. Published by : Mc Graw- Hill/Irwin R Powell (1989) Economics for Professional and Business Studies DP Publications Ltd

WEBSITES:

http://www.slideshare.net/Geckos/factors-affecting-demand-presentation, researched on January, 23rd, 2012 http://www.investopedia.com/university/economic/economics5.asp, researched on January, 23rd, 2012. 2011 -04-01 http://www.jstor.org/pss/3172944, researched on February, 10th 2012. INTERVIEWS Hannah Ali, 01/03/12, St. Stephens College (student)

Binta Baptiste , 01/03/12, St. Stephens College (student) Stephanie Singh, 01/03/12, St. Stephens College (student) Tuwana Lendor, 01/03/12, St. Stephens College (student) Shanelle Singh, 01/03/12, St. Stephens College (student) Steadman Baptiste, 01/03/12, St. Stephens College (student) Stefon Seetram, 01/03/12, St. Stephens College (student) Jeremy Adams, 01/03/12, St. Stephens College (student) Mikal Johns, 01/03/12, St. Stephens College (student) Tyrone Edwards, 01/03/12, St. Stephens College (student)