ASSIGNMENT TASK NO.

–02

MANAGERIAL ECONOMICS-1

Subject Code- ECOM531

(Master of Business Administration)

MITTAL SCHOOL OF BUSINESS

Submitted To – Dr. Nadeem Ahmad Bhat

Submitted by –

Sl. no NAME Roll NO. PEER RATING

1. BINAY RQ2140A08 10
SHARMA

2. RIA RQ2140A12 10
HEMBROM

3. SANGEETA RQ2140A16 10
SANTRA

4. RITU PODDAR RQ2140A04 07

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 CONTENTS

1. INTRODUCTION 3-4

2. CASE ANALYSIS 5-6

3. QUESTIONS FOR DISCUSSION 7-10

4. SUGGESTIONS AND CONCLUSION 10

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INTRODUCTION

The law of demand states that the next value results in a lower amount demanded which a
lower cost results in the next amount demanded.
Demand curves and demand schedules are tools accustomed summarize the connection
between amount demanded and value.

Finding the correct worth for your merchandise and services is important to increasing your
revenues, and one amongst the key factors in creating this determination entails exploitation
worth physical property to predict marginal revenue
The four main styles of elasticity of demand are value price elasticity of demand, cross
elasticity of demand and income elasticity of demand, and advertising elasticity of demand.
They’re supported value changes of the merchandise, value changes of a connected smart,
financial gain changes, and changes in promotional expenses, severally.

The Relationship between Demand and Price

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There are different types of price elasticity of demand

1) Perfectly elastic demand

2) Perfectly inelastic demand
3) Relatively elastic demand
4) Relatively inelastic demand
5) Unitary elastic demand

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 CASE STUDY- SARASWATI COLLEGE REACTS TO UGC DECISION

In the world, our country is a source of pride in terms of higher education. Education is
substantially less expensive than in the United States. We are, in fact, a socialist country
where education and a few other issues are prioritized.

However, privatization has recently stretched its wings to fundamental social areas such as
education, particularly higher education. The university grants commission (UGC) provides
funding to various universities and colleges to help them lower their educational costs.
According to the UGC, the college’s financial load has been lessened. By raising their
tuition, this has the potential to change the level of education and college development, and
will in the future, come at a quality price.

Saraswathi College was one of the colleges that reacted negatively to the UGC’s judgement.
The college’s management committee met with the principal and determined that in order to
improve the quality of instruction, students would have to pay higher tuition. The average
rise in fees was 75%.

Students also protested at the meeting between the student union and the governing
committee. A fantastic idea came to the management economics student, who analysed the
pricing structure of all the subjects. They discovered that on average, whenever a college
raises the fee for any course, the number of students drops, or the students transfer to other
courses or universities.

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ANALYSIS:

After studying the case we could analyse the reaction of the different students and the
preferences of different students. We analysed the elasticity shown by different groups. In
this case we can see how the students react to the increase in the price. The students
from managerial economics divide the students into 3 groups. Group 1 consist the students
from commerce, economics and management. Group 2 consists of students from English,
mathematics, mathematical statistics and applied psychology. Group 3 consists of students of
all other subjects. We analysed that the students of Group 1 did not show much inclination
towards leaving the course, while the students in Group 2 showed more inclination to leave
the course with the increase in the fee. Group has almost 60% students which were fee
sensitive and showed a positive correlation with the ‘economical’ courses being offered in
the college. The courses taken by the group 3 students were applied and hence the fee of this
group was also higher than other courses. Almost 2000 students were enrolled in this group
and it was seen that with every 15 hikes in the fee there was 1.25% fall in the enrolment
number.
It was observed that the hike in the price the Group B students changed their courses
because the fee structure for this group was already more than the students of group 1 and
group 2 because the courses taken by Group 3 were applied. 60% of the students were fee
sensitive hence moved to other courses or colleges. Even though according to the college
management the decision of expanding fee was a decent opportunity for the college as
increase in the fee would help the college to improve the infrastructure and also would help
them in presenting new courses which will have a positive impact on the reputation of the
college.
After analysing the case further, we can say that the decision of the college to expanding the
fee after the UGCs decision not to give subsidy to colleges was not a decent idea or we can
say it was not a decent opportunity for the college because it would decrease the number of
students in group 3 which is not a good sign for the college as the students in group 3 have
applied courses.

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QUESTIONS FOR DISCUSSION

1: Assuming that the students are consumers availing educational service, how will you
differentiate between the behaviors of the Group1, Group 2 and Group 3 consumers?
- The question above can be answered with reference to the elasticity of demand.
Elasticity of demand measures the responsiveness in the quantity demanded of a
commodity or service to changes in each of the forces that determine the demand. The
above case is basically related to price elasticity as there is change in demand of
educational service of a particular stream with the change in price of the service being
offered. The students were divided into 3 major groups
Group1 consisting of commerce, economics and management, Group2 consisting of
mathematical statistics, mathematics and applied psychology and Group3 covered all
other subjects. Thus elasticity is studied on the basis of these subjects, it was observed
that when there was change in fee or when there was hike in the fee , Group1 did not
show much inclination towards leaving the course whereas on the other hand , Group2
were fee sensitive and showed more inclination. The Group3 consisted of 60%
students who were fee sensitive and the rest 40% were not fee sensitive may be
because of the relatively higher fee. From the above observation, it is concluded that
Group1 students are perfectly inelastic since they are not affected by the change in
price whereas Group2 students are perfectly elastic because even with a little hike in
fee causes change in demand of the respective course. At last Group3 is relatively
elastic as only some percentage show change in demand with change in price. The
different kinds of elasticity shown by different groups show us that that the different
students have different behaviors and have different preferences and according these
preferences the elasticity for these groups is defined.

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Q2: Explain the law of demand that the managerial economics students were talking about to
stop the fee hike?

- According to the law of demand, when the price of a commodity rises, the quantity
demanded falls and vice versa. The managerial economics students studied all the fee
structure of all subjects carefully and also made a study of all the colleges in that area
and found that on an average, whenever the college committee had hiked the fee of
any course(except for commerce, economics and management) , there had been a
decrease in the number of students (the students either moved to other courses or
shifted to other colleges ).Therefore they argued that whenever the college committee
raised the fee, it had to incur the loss which showed that the law of demand applies to
the educational institutes as well. Moreover, the hike in fee would not benefit the
college as well but will make it incur losses as it will result drastic fall in the revenue
in spite of hike in price.

Q3: Can you think of certain arguments in the case study which the college authority could
pick up to counter-argue with the students?
- No, there are no arguments that can be raised to counter argue with students reason
being it has been clearly proved that law of demand applies to the above situation and
the fee hike would not result any profit to the college instead it will be a loss for them
if they adopt the scheme of fee hike with a view that it would result in increased
revenue. The law of demand can only be argued if it is the case of exceptions to the
law, but this is not the case. Moreover, the change in price not only affects a particular
college but it has affected the other colleges as well. This clearly proves that the study
being conducted by the students is correct and cannot be denied that the laws of
demand do not apply. The arguments given by the college authorities with respect to
the price is that the increase in the price will help the college to generate more revenue
which has a positive impact on the college reputation as increased revenue will help

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 them add more well-known courses and also help the college in developing the
infrastructure and improve other facilities. The hike in the fee will also have an impact
on the quality of the education as high price will demand high quality. These
statements were made by the college authority without having any idea about the law
of demand.

SUGGESTIONS AND CONCLUSION

As the case is clear now, after studying the law of demand and elasticity of demand or in
other words we can say after studying the behaviour of the students which were divided into
3 groups on the basis of the their courses it is concluded that the college will suffer with loss
if the increase the price. The decision of UGC to lower the amount of subsidies given has a
huge impact on the college sand their fee structure. It has not only affected the college but
the students as well because its only because if the decision of the UGC that many of the
colleges are increasing the fee structure which has a negative impact on the education system
in such a way that many of the students who belong from middle class families cannot afford
the new fee structures. As in this case, Saraswati college has increased the tuition by 75%
and other fee by almost 15% which has ultimately affected the number of students being
enrolled. It has been seen that there is 1.2% fall in enrolment with the hike in fee by 1% we
can also conclude that the education has now become a business to many.
The authorities are increasing the fee to such an extent that most of the students take loans
from the banks or changing their courses or moving to other college, which is affecting the
college as well as the career of the students. It can be suggested that the colleges should find
a new source of financial support. There should only be that much amount of hike in the fee
that is affordable by all. Although the Group 1 students are not affected by the hike in the fee
as they are not from the applied course sand their fee is lower than the other two groups. The
most affected are the Group 3 students and Group 2 students so college should see and study
the behaviour of these students and see their reaction to the hike in fee at different percent
change. We can also suggest that if the UGC is not able to give so much financial support to
the universities and colleges due to the increase in the privatization of education sector they
should provide scholarship programs to the students who cannot afford the fee after the hike.
Else they can provide certain limits up to which a university can hike the fee. A special
preference can be given to the students who belong to below average families. The UGC
should not give authorization to so many private universities and hence subsidize only those
universities that are performing well.

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