Week 2: Doing Economics – Model Building

 CLO1: Explain how modern businesses operate and how they respond to
different challenges.
 CLO2: Design conceptual models to make sense of the environment in
which businesses operate.

Lecture Notes:

In this lecture we are going to talk about how economists work with models. DIDI is
ride hailing app that has been there in AUS for the past 4 years. We do not usually
know what goes on behind the scenes in large companies like this.

Tell us about consumer demand?

Head of driver operations team is responsible for demand generation. Bevause They
operate in environment there are external factors that affect their demand. For example,
when it is raining this creates the demand for ride sharing. However, when its raining
heavily some might not to choose to drive at all. Over here when the demand is going up
the supply also gets stressed.

From a business perspective, there will be movements among the demand and supply
curve but this also shifts shocks that move the supply curve. It depends on grid density,
this means that how many people in a certain grid and requesting for ride-share compared
to how many driver are willing to provide from that particular grid. If there is a mismatch
that’s when surge goes up. When surge goes up , customers would be looking at 2x-3x
prices where as competitors (Uber ,Grab) might not have a surge as they have more drivers
in that grid. That’s when you realise there is a scarcity of driver and when you have to
pump in incentives to make sure that the surge is not over powering.

How do you use basic economic information in the business?

During supply and demand shocks there are instances where it has been difficult to
communicate these things to the drivers. There is something built in the system for
example, there is a demand event in a certain grid which creates a surge of drivers. What’s
most important is getting the market back into equilibrium.

How is demographic information collection important to understand your market?

They look at patterns such as if they are a high value rider (if they take many trips). They
look at how they can capture a new user and convert them into a regular user. Their value
proposition is being more affordable than their competitors. One of their key areas that
they are looking for demand is increasing their retention rate. Their platforms user
experience mostly does the work for increasing demand.
Advice:

 Nail basic economics

 Do some sort of programming

Lecture Notes:

Assignment 1:

Apply only for a junior job/ fresh graduate

Production possibility frontier

 Anything on the line is efficient

 C for producing 70 wings I can only produce 90
 If I want something I have to give up something (trade-off)
 This is assuming resources are limited
 More realistic graph
 More specialised worker
 With same resources we can produce more of pizzas

 Absolute adv is 120 wings Gwen

