Nova workboard

a blog from young economists at Nova SBE

When Microeconomic undertakes attempt to find ones feet after 5 decades of dictatorship.

Since you mention the country Myanmar, there is a lack of knowledge for most of the people as it was a dictatorship for the last 5 decades and mostly isolated from the rest of the world just like North Korea. With it’s population of almost 60 Mio., it represents the biggest country in the South-East-Asian region and provides plenty of opportunities regarding investment and development. During the legislative period of brutal military rule from 1962 until 2011, free market economy was unthinkable just as foreign trade, caused by economic sanctions on part of the US and EU. SIM-card prices give an example for a particularly serious form of restriction, which prevented technical progress in the Least Developed Country (LDC). When democratization and, as an effect, transformation started in the year 2011, prices decreased from 1500$ (2010) to 1.60$ in 2013,[1] which is a degression of 99,98%. After the decline in price, they became more affordable in terms of the average GDP per capita of 835,00$ in 2012 (528,27$ in 2010).[2] Even demand actually existed in the past, Myanmar’s mobile-phone penetration rate of 9% is among the lowest in the world.[3] For the future it can be assumed that the drop in SIM prices certainly opens the way for increasing consumption.

 

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Figure 1: Typical prices of SIM card in Myanmar during 1998 and 2014.[4]

 

To counter booming demand, the new government was arranging a lottery to distribute only 650.000 SIM-cards[5] at the new price. One reason is the poor radio technology infrastructure in the country, which has only 1.500 transmission towers (e.g. Thailand: 20.000). Until 2015 the mobile-phone penetration rate is expected to expand up to 80%, which demonstrates the effect of governmental price regulation policies regarding consumption, while existing demand in a pure monopoly. During the last years, the government was the only single seller, which is the polar opposite of perfect competition.

        

To approach the case from a microeconomic point of view it’s necessary to suppose that SIM cards represent “discrete goods” which means, that they naturally come in discrete units and if the price is very high, it is preferred not to consume. If the price is low enough, it’s strictly preferred to consume only one unit of SIM cards. Furthermore it might be assumed that at some price (reservation price), consumers are indifferent between consuming the good or not and as the price decreases further, more units of the discrete good are going to be demanded to maximize the utility. On the basis of presumptions of logic, the reservation price measures the incensement in utility, which is necessary to cause the consumer to choose an additional unit of the good. Regarding usually assumed convex preferences, sequences of reservation prices should decrease, but the amount of consumption in good 2 is not relevant for the reservation price in view of a given quasilinear utility function. Furthermore the three properties of the preference–indifference relation don’t take place in this case because it has to be ensured that every bundle belongs to at least one indifference set and consequently, the reflexivity principle may not be invoked. In conclusion it can be said that the consumers are better off, because consuming SIM-cards became much more affordable and as the increasing demand reveals, the reservation price of many consumers was achieved.

 

Svenja Telle # 656

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Author: studentnovasbe

Master student in Nova Sbe

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