Hello everyone. Welcome to Management Economics and Business Analysis Capstone Milestone 3. So in this milestone, we're moving onto microeconomic analysis. In your previous milestones, you have analyzed a number of countries, and you've selected two countries that's you're concentrating on. In this milestone, you are going to analyze demand for your product in each of those two countries using the framework of determinants of demand. You'll analyze the supply for your product in those countries as well using the framework of determinants of supply, and you will compare and contrast the two countries' microeconomic environment for your product. So what will happen at the end of this module? As a result of your work in this milestone, you should be able to assess the potential for profitability of your product in each country and make recommendation for a potential strategy for how you might plan to compete in each of those two countries. Let's talk a little bit more about our approach. You will now that the main model that they use in microeconomics is that of supply and demand, and so it probably comes as no surprise that this is the model that you are utilizing here as well. We know that the interaction of supply and demand for a given product, essentially determines the price and quantity traded in the market at large, and it also impacts the pricing ability for an individual firm. So on the supply side, the industry structure or we also call it the market structure has fairly strong implications for the short-term and long-term profitability. If you operate in an industry that has a lot of competition, your potential for profit is probably going to be fairly limited. On the other hand, if you operate in an industry where you might be the only seller, your potential for being profitable is quiet a bit higher in that situation. So the firm's choices about strategy for its products, which means decisions about price and cost leadership, branding and marketing its product, decisions about how to segment its markets and what sort of prices to charge in those segmented markets, will also make quite difference in decisions about interactions for its rivals and its customers and the firm's profitability. Analyzing demand. So when you think about demand for your product, we'll take the approach here of looking at the basic framework of determinants of demand, and sometimes you see different textbooks call them differently. You might see a term factors that affect demand, sometimes you see them called demand shifters. Determinants of demand is by far the most common use of the term. But essentially, determinants of demand are factors that determine the shape and the magnitude of the demand curve, and when determinants of demand change, demand shifts, which means that it increases or decreases. So what are those determinants of demand? Well, there is quite a list here. They include consumer incomes, tastes and preferences of consumers, composition of the population, and the number of consumers in the marketplace. They might include related goods, and so that's typically prices of substitute goods and complimentary goods, and it also might be consumers expectations about the future. How might this work? So if you think about a given typical demand curve, and if you think about how a demand curve might shift when one of the determinants of demand changes. What happens when consumer income increases? Well, if this is a normal good or a luxury good, you would probably expect that as consumer income increases, the demand for your product might increase as well. That is it might shift to the right. So when you discuss your project, when you discuss your product, you might think about what is going to happen in the future as the incomes of your consumers increase, and this is one opportunity for you to tie in together macroeconomic data and microeconomic environments as well. Another item in here, speaking strictly about micro economic situations, is what might a firm do to change tastes and preferences of consumers? Well, one item here might be advertising. Why does a firm advertise? To change those tastes and preferences, correct? So when consumer tastes and preferences change impacted by advertising for example. That means that the demand curve might be shifting to the right, and as a result, we expect that the firm is going to be impacted positively by something like this. So your task in here is going to Identify and discuss how determinants of demand in each of the two countries shape the demand for your product, and what might be some of the trends that indicate changes in the determinants of demand? That might be changes in the population, that might be changes in income, and how those will benefit or potentially hurt the firm. Whenever possible, you do want to support your narrative by data, but we also do realize that in some cases data might be hard to come by. You also want to talk about what the firm can do to change those determinants of demand and increase the demand for its product. So marketing and branding campaigns are typically designed to shift the demand to the right, and unique interests and branding also separate the product into a market of its own. This is how you distinguish yourself from everybody else, right? So that's another item for you to consider. Moving onto supply. In analyzing the supplying, it probably comes as no surprise that they're using the framework of determinants of supply here. Similarly, these are sometimes called factor that affect supply or supply shifters. So those will determine the shape and the magnitude of the supply curve, and when determinants of supply change, supply curve will shift, whether it will shift to the left; decrease or shift to the right; increase. So determinants of supply, if you wanted to put together a list, the list would probably look something like this. It would most likely include input, that is raw material prices. It would definitely include technology, changes in technology could make an incredible difference in shifting the supply curve. They would include government policies, regulations, and taxes. In other words, all of the factors that impact the ease of doing business, number of suppliers in the market, and suppliers' expectations about the future. Similarly, you can think about how for example an increase in the number of suppliers is going to shift the supply curve. The very fact of your firm's opening a production facility and entering the market in a new country is going to increase the supply for this product in the country because there's going to be an extra supplier in their. So that represents that shift of the supply curve to the right as an example. So you're going to have to think about how determinants of supply in each of those two countries shape the supply curve for your product, what are the trends in those determinants that you see, and then please think a little bit more about the market structure. If you come back to the four basic market types, that continuum that starts with perfect competition and that ends in monopoly, what's the best way to characterize the business environment for your product? Or to characterize the industry in your selected country? How will your entry impact this market structure? Just to remind you, in a couple of slides, I will show you what the typical markets structure looks like and how it might be characterized. But couple more questions in here. What might be some of the implications of the market structure on the short and long-term profitability and for highly competitive industries? Especially for highly competitive industries, what might be a strategy that you can use to overcome the potential pressure on profits? The market structure table that I've promised to you typically looks like this. You're looking at the four types of market or industry structures. On top, perfect competition, monopolistic competition, oligopoly and monopoly. Remember, in most cases, you're probably going to be either in the monopolistic competition bucket or if you're lucky perhaps in the oligopoly bucket, you can characterize those by the number of firms, firm size, type of product, entry exit condition, non-price competition and market power. Typically, what the firm would love to see, the more market power they have the better. For consumers, of course, the other way around. What they'd like the firm to see is to have as little market power as possible because that limits the price that they can charge. But that's something for you to consider in this project. So by the end of this module, you'll have completed that microeconomic analysis of the two countries using our old friend; the demand and supply framework. You will have analyzed the impact of the market structure and competition on your expected profitability, and that research is a really good foundation for you to suggest strategies that the firm may use to compete effectively in each of these markets. That will in turn allow you to compare and contrast those two countries and their microeconomic environments, to identify their pluses and minuses, and that gets you ready to put all of your work together for Module 4 to make that final recommendation to the board, to produce that final report, and eventually, get done in this course in that module number 4. So thank you everyone. Let's get some work done, we are almost there.
