Economics project of Honda Activa.

Honda Activa. Project By:Utsav Soni. Akshita Paliwal. Kunal Bhatia. Vidhi Pitroda. Chirag Shah.

Submitted to Prof. Surta Mehta.

Flow of presentation. • • • • • • • • •

About Honda Activa. Factors of production. Impact of change in factors of production. Demand / supply. Market structure. Demand / production function. Cost curves. Opportunity cost. Effect of the government policies.

About Honda Activa • INDIA’s most successful scooter. • Honda Motorcycle and Scooter India, Private Limited (HMSI). • Founded in 1999 • Subsidiary company of Honda Motor Company, Limited, Japan. • Basically originally Honda Company was established in 1959 by, Soichiro Honda.

Cont.…. • Currently Mr. Hironori Kanayama is the president of HMSI. • There were basically two model s of activa. • First model was launched in 2000, and second model was launched in 2009. • Second model was much more energy efficient that increased the demand of the activa.

Factors of production • • • •

Land Labor Capital Entrepreneur.

According to Prof. Benham, "Anything that contributes towards output is a factor of production."

LAND • Land is only a the factor which had it’s supply fixed • It is the resource that has no cost of production • HMSI 2 wheeler manufacturing plant’s: • Manesar ( Haryana) 210,000 m2 • Tapukara(Rajasthan) 240,000 m2 • Narasapura (Karnatak) 350,000 m2

Labour • Labour represents the human capital available to transform raw or national resources into consumer goods. • It is the flexible factor of production as they can be diverted towards many type of work. • HMSI gives employment to Approx 15,000 employee.

Capital • Capital has two economic definitions as a factor of production • Capital can represent the monetary resources • Physical assets individuals and companies use when producing goods or services. • Initial capital invested was 215 corer. • Which increase 16 Billion(Approx) .

Entrepreneur • Entrepreneurship is considered a factor of production because economic resources can exist in an economy and not be transformed into consumer goods • Mr. Soichiro Honda were the entrepreneur of Honda Motors Ltd. • Currently Mr. Takanobu Ito is the CEO of the company. • Mr. Takashi Nagai is the operating head in INDIA.

Impact on factors of production due to price fluctuations • On Land • On land if the price fluctuates there is no impact on the production. • On labor • If the labor price fluctuates there would a large effect on the production process. • On Capital • On entrepreneur

Demand What is Demand? “A function where a consumer desire a good, which is supported by purchasing power is know as demand.” Demand for Activa. • Activa is one of the leading scoter in Indian market since a decade. • It sales have been increasing from the day it sales started.

Cont.….. Demand Curve of Activa

55000

Price of activa

54500 54000 53500 53000 52500 52000 51500 0

200

400

600 Demand of activa

800

1000

1200

Supply. What is Supply? “A function where the quantity of the item that is produced and offered for sale is known as supply” Supply for Activa. • When the plant of HMSI started in 2001 it manufactured 100,000* Activa per year. • It supply have been increasing from the day it sales started. * As per company data.

Cont.….. Supply of Activa 55000

Price of Activa

54500 54000 53500 53000 52500 52000 51500 0

200

400

600

Supply of Activa

800

1000

1200

Price. How is price determined? “ Price is determined where the demand and supply meets at a common point know a equilibrium point” Price of Activa. • The price of activa is stagnant, it never fluctuated highly. • Currently the price of activa is INR 53,134*. • Which is in range of all the competing scooter.

* On road price Ahmedabad.

Cont.….. Equilibrium 1200

Demand

1000 800 600 Suppy

400

Demand

200 0 51500

52000 52500 53000 53500 54000 54500 55000 Price.

Demand Function What is demand function? “Demand function is a mathematical function showing relationship between the quantity demanded of a commodity and the factors influencing demand” It can be represented as: Dx = f (Px, Py, T, Y, A, Pp, Ep, U)

• In the above equation,

Cont. ....

• Dx = Quantity demanded of activa • Px = Price of Activa • Py = Price of related goods ( E.g.: Suzuki Accesses, Pleasure, TVS scooty) • T = Tastes and preferences of consumer • Y = Income level • A = Advertising and promotional activities • Pp = Population (Size of the market) • Ep = Consumer’s expectations about future prices • U = Specific factors affecting demand for a commodity such as seasonal changes, taxation policy, availability of credit facilities.

Production Function What is production function? “An function of combined output of all the input function is know as production function” It can be represented as: Q = f (X1, X2,X3,…Xn) Where: Q = Production of Activa. X1, X2, X3,…Xn = Quantity’s of factors of production.

Determinants of Demand The factors that plays a crucial role are know as determinants of demand. • Price of activa • This determinant affects the demand inversely • Consumer preference ( Of INDIA ) • In India the public desire only one thing that is the mileage • The new model of activa gives 15 % more mileage, this affect the demand a lot • No. of buyers • There are many potential buyers in India, By which they influence the demand directly

Cont... • Price of related goods. • The price of complimentary goods and the substitute goods affects the demand, as a consumer can easily switch over to other related goods • Expectation of future • A consumer buys the goods as he desire that he would get the benefits out of it, here the future expectation plays a crucial role in determining the demand.

Cont... • Price of related goods. • The price of complimentary goods and the substitute goods affects the demand, as a consumer can easily switch over to other related goods • Expectation of future • A consumer buys the goods as he desire that he would get the benefits out of it, here the future expectation plays a crucial role in determining the demand.

Elasticity What is elasticity? “Elasticity is the measurement of how changing one economic variable affects others” There are following type of elasticity. • Price elasticity of demand • Price elasticity of Supply • Income elasticity of demand • Cross-elasticity of demand

Price elasticity of demand “Price elasticity of demand is the percentage change in quantity demanded with respect to the percentage change in price” Price elasticity of demand can be illustrated by the following formula: PED = Percentage change in Quantity Demanded Percentage change in price For E.g 5% increase in the price of Activa causes a 0% fall in the Quantity demanded the price elasticity of demand will be: PED = 0% = 0 5%

Cont...

Price elasticity of Supply “Price elasticity of supply is the percentage change in quantity supply with respect to the percentage change in price” Price elasticity of supply can be illustrated by the following formula: PES =

Percentage change in Quantity Supplied Percentage change in price

For E.g 5% increase in the price of Activa causes a 0% fall in the Quantity supplied the price elasticity of supply will be: PES = 0% = 0 5%

Cont...

Income elasticity of Demand “The degree to which an increase in income will cause an increase in demand is called income elasticity of demand” Income elasticity of demand can be illustrated by the following formula: IED= (( current Quantity – Previous Quantity) / (Previous Quantity)) (( Current Income – Previous Income) / (Previous Income)) For E.g. The increase in income of people from 50,000 to 60,000 the quantity demanded increase by 70 units in sales of activa IED=

((570-500)/(500)) ((60,000-50,000)/(50,000)) = 1.42 i.e. The income is elastic

Cross elasticity of Demand “Cross elasticity of demand is the percentage change in quantity demanded of a specific good, with respect to the percentage change in the price of another related good.” Cross elasticity can be derived by following formula: CED = Percentage change in Demand for good a Percentage change in Price of good bor E.g. If the price of bread (a compliment) rose, the demand for butter would fall. If a 4% rise in the price of bread led to a 3% fall in the demand for butter, the cross-price elasticity of demand for butter with respect to bread would be: CED =

- 3% = – 0.75 4%

Market Structure “Market structure is the number of firms producing identical products which are homogeneous” There are mainly 4 types: • Perfect competition: Many buyers and sellers, none being able to influence prices. • Oligopoly: Several large sellers who have some control over the prices. • Monopoly: Single seller with considerable control over supply and prices. • Monopolistic Competition: Where there is a large number of firms, each having a small proportion of the market share and slightly differentiated products.

Cont... The Market structure of Honda Activa The market structure of activa is “ PERFECT COMPETITION” • As there are only few manufacturer of scooter in market, but the buyer market is very huge. • Activa Consist approx 60%* of whole scooter market in INDIA. • Activa Consist approx 30%* of whole two wheeler market in INDIA. • This makes activa the market leader.

*Generalization assumption.

Cost curve “A cost curve is a graph of the costs of production as a function of total quantity produced” It includes following curves: • Average cost: Equal total costs divided by output • Marginal cost: is the change in total cost that arises when the quantity produced changes by one unit • Average variable cost: is the variable cost per unit • Average fixed Cost: is the fixed cost per unit of output

On Graph • MC = Marginal Cost. • AC= Average Cost • AVC = Average variable cost • AFC= Average fixed cost

Cont...

Cont... • Marginal Cost: In initial run the cost decreases as only the variable cost is incurred and the AFC decrease. • Average Cost: It decrease initially as the AFC and AVC have a combined decrease • Average variable cost: As output grows, the AVC initially tends to fall. But eventually, diminishing marginal returns will drive up average variable costs. • Average fixed cost: It decrease gradually and then at a certain point of time it becomes constant

Impact of government policy • Increase in Vat % directly affect the price of Activa • Increase in petrol price effect the demand very strongly • Change in subsides by the govt. also affect the demand • The change in policy for the complimentary goods ( For e.g. Change in iron price) • The change in Import & Export policy also directly affects the demand and supply • The government policy for loan on two wheeler • Govt. policies for the electric bike • Decision of FDI also affects the Activa as a product