MULJIBHAI MEHTA INTERNATIONAL SCHOOL

– VIRAR

PROJECT WORK- ECONOMICS

TOPIC Effect of Price Change on Substitute Goods

Submitted by: DEEP HITESH CHAUHAN

Submitted to: GAURI NAIK
Class: XI Commerce
Academic Year – 2019-2020

1|Page
 CERTIFICATE

This is to Certify that Master _DEEP HITESH

CHAUHAN of class XI Commerce has successfully
completed the project on Case Study as a part of
Entrepreneurship syllabus of CBSE Curriculum for
session 2019-2020.

Project Mentor Signature: _______________

Principal Signature: ________________

Examiner Signature: ________________

2|Page
 ACKNOWLEDGEMENT

I am thankful to Our Principal Mrs. Manisha

Karekar, my subject teacher Ms. Gauri Naik and my
parents for providing me an opportunity to work on this
case study.

It is a matter of pride and pleasure to express my

indebtedness and warm gratitude to the faculty of
Commerce for their keen interest, continuous assistance
and constructive criticism at every stage of this case.
I am also thankful to CBSE for including Case Study as a
part of Economics syllabus.

3|Page
MI K20 Pro

4|Page
Height 156.7 mm
Width 74.3 mm
Thickness 8.8 mm
Good ▾
Weight 191 grams

Colours Carbon Black, Flame Red, Glacier Blue, Pearl White

Screen to 85.9 %
Body Ratio
(calculated)

Chipset Qualcomm Snapdragon 730

Graphics Adreno 618

RAM 8/10 GB

Storage
Best in Class ▾
Internal 256 GB
Memory
Expandable No
Memory

5|Page
 MAIN CAMERA
▾
Battery 4000 mAh
Type Li-Polymer
User No
Replaceable
Quick Quick, v3.0
Charging

Network & Connectivity

Multimedia
Loudspeaker

Audio Jack 3.5 mm

Special Features
Fingerprint
Sensor
Fingerprint On-screen
Sensor
Position
Other Light sensor, Proximity sensor, Accelerometer, Compass,
Sensors Gyroscope

6|Page
Introduction

Demand and supply are two very basic and important

terms in economics to study and determine the market
equilibrium. A market is the process of buyers and sellers
exchanging goods and services. Buyers, as a group,
determine the demand side of the market, whether it is
consumers purchasing goods or firms purchasing inputs.
On the other hand, sellers, as a group, determine the
supply side of the market, whether it is firms selling their
goods or resource owners selling their inputs. It is the interaction of buyers and sellers that determines market
prices and output through the forces of supply and demand.

Demand simply means the ability and willingness of consumer to buy certain amount of goods and services at a
particular price. According to the law of demand, the quantity of a good or service demanded varies inversely
with its price, other things equal. A demand curve is a downward sloping curve and it shows negative or
inverse relationship between price and quantity demanded. When the price increases, the quantity demanded
by consumer decreases, conversely, when the price decreases, the quantity demanded by consumer increases. A
change in quantity demanded is a movement along the demand curve, when price increases, point A moves to
point B, and point A moves to point C when there is a price drops as figure 1 shown. Movement along the curve
occurs only when there is a price change.

There are several reasons why the relationship between price and quantity demanded is negative or inverse.
Observed behavior tells us that consumers will buy more goods and services at lower prices than higher prices,
ceteris paribus. Diminishing marginal utility is also one of the reasons, it means in a given time period, a buyer
will receive less satisfaction from each successive unit consumed, therefore, consumers will only buy added
units if the price were reduced. Whereas, a change in demand is a shift of the demand curve, demand curve
shift rightward when demand increases and shift leftward when there is a drop in demand. A shift on the curve
is caused by the other factors than the price of the good such as government regulations and technology
change

7|Page
When there is a price change, there will be two effects on consumers. First, the substitution effect is an effect
caused by a rise in price that induces a consumer (whose income has remained the same) to buy more of a
relatively lower-priced good and less of a higher-priced one. For instance, when the price of coffee increases,
there are many close substitute goods as options to replace coffee, and consumer can replace coffee by tea with

the same amount of income that they are holding and the same price of tea. In this case, it brings a result that
the quantity demanded for coffee decreases and the demand for tea increases.

Demand and supply principles are the most basic part of economics that stands as a crucial component defining
the markets for various products in the economy. Mobile phones in today’s world is a commodity or product that
is highly demanded by consumers considering the increasing use of the product because of the formation of new
mobile companies, numerous suppliers providing phones at affordable prices which attracts consumers from all
kinds of income classes who can easily afford a mobile phone of the price range they can want to buy. We shall
analyze the mobile phone market here, to see the demand supply trends of mobile phones and the factors that
affect the demand supply of mobile phones.

As was noted by the ‘The Guardian’ as of the year 2009, more than half of the world population had mobile phone
accounts which must have increased further after the growth of suppliers and units of the product in the market.
The sale of mobile phones in the nations which are poorer rose considerably in the years from 2006 to 2010
(Mega Essays). As per the GSM association the mobile phones industry revenues were expected to go up to $1.9
trillion in 2015 as the number of mobile connections pitch to 9.1 billion (Bingemann, 2012).

Australia is said to have 9th highest number of smart phone subscriptions in the world. It is found that 89% of
Australians own a smart phone, 34% do not have a landline connection, 61% would prefer a mobile phone than
a TV (Rogers, 2015). Further technological developments with the Apple i-Phone launch in 2007 and i-Pad in
2010, as well as the Samsung android phones have boosted the demand for smart phones and tablets. The industry
revenue is predicted to grow at a compound annual rate of 9.3% in the coming five years along with the industry’s

8|Page
contribution towards the economy is predicted to go up at the annual rate of 5.1% over a period of 10 years. The
push given by Australian carriers to wireless data services and mobile hardware is also considered as a reason
for the industry boom, with wide coverage the rising demand for data services is increasing demand for smart
phones. Surveys and statistics also claim that Australia is considered as the top smart phone market, as per the
data saying that the smart phone penetration has risen up to 84% in 2013 from just 19% in 2007. On the other
side social media has driven more people towards mobiles through fast networking via applications as the Yellow
Pages Report says 59% of the Australian social media users are accessing Facebook on mobile devices (Business
Insider, 2013).

As we know there are several factors that affect the demand and supply of a product. Similarly, here there are
many other such factors that affect the demand supply of mobile phones. The factors cause a shift in the demand
curve of mobile phones, shifting upward or downwards and simultaneously increasing or decreasing prices.

Definition

A change in the demand of a good or service, induced by a change in the consumers' discretionary income.Any
increase or decrease in price correspondingly decreases or increases consumers' discretionary income which, in
turn, causes a lower or higher demand for the same or some other good or service. For example, if a consumer
spends one-half of his or her income on bread alone, a fifty-percent decrease in the price of bread will increase
the free money available to him or her by the same amount which he or she can spend in buying more bread or
something else. It is one of the two effects caused by a price change; the other is substitution effect.

Analyse pricing influences

Understanding how external factors can influence how you price yourself is the key to finding an optimum price
for your products or services.

9|Page
When researching your market, analyse your data and consider how your results will impact your price. These
market influences will also help guide your choice of pricing strategy to counter any unfavourable conditions.

External influences

Price sensitivity in the market

Price sensitivity refers to the changes in customer demand as a price changes. For example, commodity goods
such as petrol have high price sensitivity. The difference of a few cents in price can impact a customer's
behaviour.

Some markets are more sensitive to price increases than others. Price sensitivity can change over time based on
a number of factors including changes in the economic environment, competition or demand. Factors other than
price, such as quality, service, and uniqueness, can also influence price sensitivity.

Level of demand

Demand for your products or services will have a great influence on price. Generally, the higher demand for your
product, the higher you can price your product and services. Demand can also be influenced by price. For
example, lowering the price of a product can increase demand temporarily.

Level of Competition

Competition can impact your price and its sensitivity. Generally, the less competition you have, the higher demand
there is for your product. Changes in your competition may also impact your price, such as a new competitor
entering the market could affect the level of demand for your products or services.

Your competitor's activities can also have an impact on your pricing decisions, whether they have a new feature,
an advertising campaign running or a price reduction.

Government regulations

10 | P a g e
Depending on your industry or how global your market is, local and international regulations can sometimes
influence your pricing decisions. For detailed information on pricing regulations, see our Legal obligations page.

Researching price influences

Research can help you find the optimum price for your products. Generally, the optimum price is one that your
customers are willing to pay, without it affecting your profits. This isn't a one-off activity, you must monitor

Your key pricing influences regularly as part of your overall market research to ensure your prices stay
competitive and you still meet your customers' expectations.

Market testing

To help you determine how much your customers are willing to pay for your product/service you should perform
some form of market testing. As a start, research your customer's purchasing behaviour such as:

 their current and anticipated demand for this type of product/service

 what they pay for similar products/services
 the quantity likely to be purchased
 Additional features they value.

With this customer information in mind, you can then develop a price comparison offering a number of different
product/service options for testing to help you determine a price range that is acceptable.

Competitors

In writing your marketing plan, you should have already determined who your direct competitors are and how
your business compares to them. This information can be useful in helping you determine your price point. If
you decide to use your competitors' prices as a guide, be careful that it doesn't dictate your prices too much, as
it can seriously undervalue your product/service and drive down your profits.

11 | P a g e
 When you compare your business to competitors, it's also important to ensure you look at the business as a
whole and compare on other value-based traits (such as special features, quality and customer service) as well
as price.

What to do...

 Consult an experienced business adviser, accountant or solicitor.

 Use our free Advisory Services search to find a low-cost business adviser near you.
 Find out more about Export pricing and quotations.
 Go to our Events search for seminars on marketing and pricing near you.

PRICING
Last Updated: 24 July 2018

It can be difficult to determine how much to charge for a product or

service. If you set your prices too high, you might price your customers
out of purchasing from you, however, you can also affect your profits if
you set your prices too low.

CALCULATE YOUR PRICE

Successfully achieving the right price can also help you position your business/products within the market and
meet profit goals, so it's important to consider pricing as part of both your finance and marketing strategies.

Read the following to help you calculate your price:

 Researching and analyzing pricing influences.

 Determining your pricing objectives.
 Selecting your pricing strategies.

12 | P a g e
 WHAT IS THE PURPOSE OF ADVERTISING?

The purpose of advertising is to market and promote a product or service to:

 create awareness
 communicate information
 educate your audience
 enhance sales
 Create demand.

BENEFITS OF ADVERTISING

Advertising plays an important role, not only for the business but also for the customer. Businesses create
awareness of their product or service through advertising, and the customer buys the product or service after
they become aware of it in the market.

A successful advertising campaign can generate several key benefits for your business, including:

 an increase in sales
 enhanced brand recognition
 increase in customer reach
 repeat sales
 Gaining a competitive advantage.

Successful advertising can reach a large audience, attracting more sales thereby increasing your revenue.

WHAT TO INCLUDE IN YOUR ADVERTISEMENTS

For your advertising to be successful you need to set yourself apart from your competitors and grab your
audience's attention. When creating your ad make sure you:

 use a powerful headline

 tailor your message to suit your target audience

13 | P a g e
 talk about the benefits
 have a call-to-action
 use exciting images
 use testimonials if relevant
 Always deliver on what you promise.

TYPES OF ADVERTISING

There are many different ways for a business to get a message to the consumer. With a range of media choices,
finding the best advertising mix for your business can be challenging.

The advertising channels you choose should depend on the business you run, your budget and the media channels
your target audience has access to. If your audience is mainly elderly customers, you should focus your
advertising campaign on traditional media such as their local newspaper or radio station. Targeting the younger
generation will probably see you engage with new media such as blogs, apps and social media.

Traditional media
Traditional media is an established form of mass media and includes pre-digital advertising methods such as
television, radio and print (i.e. newspapers, magazines and billboards). It relies on messages sent out to the
consumer through a one-way communication channel to a mass audience.

TYPES OF TRADITIONAL ADVERTISING ARE:

 television advertisements
 radio advertising
 print advertising
 cinema advertising
 billboards and off-site signs
 banner ads
 mail order advertisements
 cold calling
 door-to-door sales

14 | P a g e
 In the past, traditional advertising was the only way to spread your message. With the emergence of new media,
you can also focus your efforts on your ideal buyer and build a community around your product or service.
New media

New media, also known as digital advertising, is a popular form of online advertising for businesses to promote
their products or services. The variety of digital channels allows you to reach your core customers in creative
new ways, allowing your customer to interact and engage with you and your brand in a two-way format.

This form of advertising allows you to reach a larger target audience and has the potential to reach customers all
over the world. You can also track your customers and analyse their purchasing behaviour while customizing
your message to their preferences.

Types of new media are:

 online advertising - retargeting, banner ads, display ads, keywords, native, video
 online streaming - radio and television
 social media advertising
 mobile app advertising
 Email marketing.


MARKETING PLANS
Last Updated: 14 August 2018

Whether you're a restaurant with 40 staff or a sole-trading accountant, every business needs to understand the
value of marketing. Marketing can help you reach your target audience, boost your customer base, and ultimately
increase your bottom line. Marketing is much more than large advertising campaigns and attractive logos. It's a
vital part of your business operations and needs be addressed from the beginning of your business journey.

Good marketing tells a story about your business and gives your customers a reason to purchase from you instead
of the competition. Marketing can help you attract new customers, focus on satisfying their needs and build

15 | P a g e
 lasting relationships. Marketing requires research, time and appropriate allocation of budget. Investing time in
developing your marketing strategy can help your business grow.

WHAT IS MARKETING?

There are many definitions of marketing, however put broadly, marketing is a strategic mix of business activities
that work towards a bigger goal of building your brand and business. Marketing is about identifying and
understanding your customers and developing products and services that meet their needs. Marketing is
important across many areas of your business, including how your customers are greeted on the phone, your
customer service procedures, what your staff wear, and your email signature.

BENEFITS OF MARKETING

Good marketing helps you to examine all aspects of your business, no matter how small, and think about how
they affect the perception your customers' have of your business. Although marketing takes time, research and
analysis, successful marketing can help you increase your bottom line.

Here are some examples of where marketing is already evident in your business model:

 how you are positioned in the market

 who your target audience is
 how you price your products and services
 The quality of your products.

Writing a marketing plan can help you define some aspects of your business and help you focus on your priorities.

SELLING PRODUCTS AND SERVICES

After you’ve done all the hard work setting up your

business, it’s time to start selling your products or
services.

16 | P a g e
 Regardless of whether you’re a born salesperson or not, there are some essential parts of the process that can
help you achieve your sales goals.

 Having the right type of label on your products is a key component of your sales and marketing strategy. Our
page on product labelling includes information on what you must include on your label, as well as links to
industry regulations such as the Food Standards Code.
 Do you know how trade measurement laws apply to the products you sell? You can find out what they are what
your business needs to do in our page on Australia's trade measurement laws.
 Did you know the new Country of Origin Labelling (CoOL) laws mean products packaged from 1 July 2018 must
display the new labels? You can find out how to get the new labels in our page on country of origin food labelling.
 A customer loyalty or reward program offers incentives for customers to keep buying your products or services.
There are benefits and risks but our page can help you decide on the type of customer loyalty program that best
suits your business.
 You may also want to consider selling your products or services to government agencies. Our page on tenders
and contracts can help you be aware of opportunities for your business.

∙∙∙▫▫ᵒᴼᵒ▫ₒₒ▫ᵒᴼᵒ▫ₒₒ▫ᵒᴼᵒ THE END ᵒᴼᵒ▫ₒₒ▫ᵒᴼᵒ▫ₒₒ▫ᵒᴼᵒ▫▫∙∙∙

17 | P a g e