Good Modern Microeconomics Course Work Example

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Part 1: Supply and Demand

Event 1: With the rise in the average income, the demand curve will shift to the right from DH1 to DH2 as demand increases for each price level. The purchasing power of the consumers increases, so that they can buy more at the same price level. The supply remains the same. The new equilibrium will be at the point A.

Event 2: A fall in population will lead to a left ward shift in the demand curve from DH1 to DH3 as demand decreases. The quantity demanded will fall for each price level as the number of consumers is reduced. The new equilibrium will be at point B.

Event 3: With more building land available the supply will increase leading to a rightward shift of the supply curve from SH1 to SH3.More buildings can be constructed because of the land availability. So the supply increases irrespective of the price level. The new equilibrium will be at point D at a lower price level.

Event 4: If house prices rise the movement will be along the curve. The demand or supply curve will not change. With the rise in prices demand will fall along the demand curve DH1 and supply will rise along the supply curve SH1 leading to an excess supply condition.

Event 5: If tastes change in such a way that less number of people prefer to buy a house, the demand will fall leading to a leftward shift of the demand curve from DH1 to DH3. At the same price level less number of people will prefer to purchase a house. The new equilibrium will be at point B at a lower price level.

Part 2: Evaluation and Presentation of a Questionnaire

The questionnaire was aimed at finding the best way of communicating with the customers and to find the preference pattern of the customers. The aim was to find the right marketing strategy to increase the sales of the company. There were 400 respondents in all. The average age of the respondents was about 38 years. 40% of the respondents were in the age group of 35-44 years and 30% in the age group of 25-34 years. The analysis of the responses of the 400 customers is presented in this report. More than half of the respondents are either middle level managers or in a clerical or secretarial position. Around 25 percent are professionals. Only 10 percent are retired persons and around 13 percent are self-employed.

Coming to the frequency of communication, we find that 50 percent of the respondents would prefer to receive email newsletters from Hertz once in a month. Only 20 percent would prefer to have an email once every fortnight. Only a small proportion of the respondents showed interest in receiving newsletters once a week. A majority of the respondents (70%) would prefer to have a telephonic communication only once in every three months. About 18 percent expressed their disinterest in having any telephonic conversation at all. It is clear that the customers are apathetic to receiving any communication via post. Fifty percent of the respondents would not prefer to have any correspondence from the company via post. 75 percent of the respondents are of the opinion that the email messages they receive are promotional in nature and only 25 percent feel that they receive service messages.
Most of the respondents expressed their interest in having a 10 percent discount on UK car rental but not on worldwide hire.

A new additional driver on the next hire would not be appealing to 95 percent of the customers. Majority of the customers would not prefer to have a location within ten miles of their home. The respondents are not at all interested in new rental schemes. They are not much bothered about a new additional fleet of the company. The customers do not prefer to be contacted either with a service message or with a promotional message. The brand loyalty towards Hertz is not very high. 25 percent of the customers would stick to Hertz. 25percent have loyalty to some other company. Around 38% of the respondents would take a quote from at least one other company before placing a booking with Hertz. More than 85 percent of the respondents expressed that they will not be influenced by a promotional message while placing an order with Hertz. Same is the case for a service message. The likelihood of placing a order does not increase either with a promotional message or a service message. Contact through the internet is the most preferred choice of the customers. Most of the respondents (80 percent) will be willing to book with Hertz with an all-inclusive price rather than a discounted price.

It is clear from the responses that, neither promotional messages nor service messages can increase the customer preference for Hertz. In fact, the customers seem to be averse to any kind of communication especially over the telephone. However, communication through the internet will be preferred to some extent. It is the price that produces maximum effect in increasing the market share of the company. More than offering a discount, a price reduction will have a better effect in generating more demand for the car hire services of Hertz. The customers would be more swayed by a low all-inclusive price rather than a discount scheme. Non-price strategies like the provision of some additional services in the form of a number of new locations at different parts of the region and an additional new driver with every new order, will not be able to increase the market power of the company. Discount schemes are likely to capture significant portions of the market. It is clear from the survey that Europcar is the major competitor of Hertz in this market. So, it is important to keep an eye on the strategies followed by Europcar.

Part 3: Relationships between variables

- The value of construction activities for the three sectors, public, private, and infrastructure for each quarter from 2000 to 2010 has been presented in Figure 1 below. The value of all new works has also been shown in the same graph.

Construction activities in the infrastructural sector showed no major fluctuations. There was a moderate fall after 2003 which recovered modestly after the third quarter of 2009. The public construction activities remained almost flat during the period. There were no major changes. A slight upward trend can be observed all through the period though the value of

activities is quite low in this sector compared to the other two sectors. The construction activities are highest in the private sector.
- It is clear from the graphical analysis that the construction activities in the private sector has moved in a similar trend with value of all new works. The other two sectors do not seem to be much associated with the all new construction works taking place. This will be clear if we study the correlation between the three sectors and all new works. The correlations are presented in Table 1 below.

The table of correlation shows that the public and private construction activities are almost uncorrelated. There is a slight positive correlation between infrastructural sector and the public sector. Interestingly, construction activities in the infrastructural sector are negatively associated with the construction activities in the private sector. The infrastructural sector has a negative correlation with all new works as well, though the value of correlation is small. The ‘all new works’ has a positive correlation with both public and the private sector. But the correlation is highest with the private sector. The correlation coefficient between all new works and private sector construction activities is 0.87. This shows that all new works has the best relationship with private construction activities. It shows that a majority of new works take place in the private sector compared to the public sector.

- All new works have the best relationship with the private sector construction activities. The regression equation between all new works and the value of construction activities is given below:- Since the model has a 75% predictive power it can be used for forecasting. The private construction activities can explain 75% of the all new works taking place. But if the data is broken down into time slots and then regressed we can see that the model will have a better predictive capacity for some of the quarters. I f we conduct a regression for the two variables between 2008 and 2009 we will find that the private construction explains the all new works much better. 


Pindyck, R. and Rubinfield, D. (2008). Microeconomics. 7th edition. New Jersey:
Pearson Prentice Hall.
Koutsoyiannis, A. (2003). Modern Microeconomics. 2nd Edition. Macmillan.
Maddala, G.S.(1992). Introduction to Econometrics. 2nd Edition.New York:Macmillan Publishing Company.
Varian, H.R.(2010). Intermediate Microeconomics:A Modern Approach. 8th Ediction. New York:W.W. Norton and Company.
Wooldridge, J.M.(2002). Econometric Analysis of Cross Section and Panel Data. Cambridge: The MIT Press.
Woolridge, J.M.(2009). Econometrics. Cengage Learning.

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