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Introduction

Gamma Materials Limited is one of the leading companies which are listed on Mauritius Stock Exchange. It came into existence in 1987 (Gamma Materials Limited 2019). It is involved in the production and trading of macadam, sand, block, prefabricated products, decorative concrete products and ready-mixed concrete. Approximately more than 300 employees are currently working in the organization. It helps in fulfilling the requirements of construction materials. The major objective of the company is to achieve profitability and increase in market share by satisfying the customers’ needs and wants. It is continuously undertaking improvement measures with regard to manufacturing and delivery of wide range of products (Annual report 2018).

It provides effective training to its staff members in order to maintain high quality of offered products. The other main objective of the Gamma Materials Limited is to increase and safeguard the wealth of its shareholders and provide them with the maximum returns on the amount invested by them (Gamma 2019). It laid emphasis on building a sustainable platform to meet its higher growth prospects and profitability. It prioritizes the safety and protection of its employees above all other things as it considers them as the lifeline of the company.

Employees are motivated to participate and give their suggestions to the management and feel empowered. It takes reasonable amount of actions to reduce its unfavorable impact on the environment like research and produce products that will not impact the environment, limits the consumption of water and energy by properly managing the space and logistics, following recycling methods and efficient waste management practices (Gamma 2019). It optimizes the shareholders’ value by carrying out its operations in a socially responsible manner and examines various non-core projects in different sectors to enhance the growth of complete group.

Main Consumers and The Reasons for Their Demand

The major group of consumers of the company’s products includes construction companies, builders, contractors, owners running real estate business, government and other individuals who are involved in the construction of properties. Gamma Materials Limited produces products which are required by the customers to build houses, buildings, offices, hotels, restaurants, resorts, hospitals, bridges, etc. the concept of opportunity cost come into existence where there is a need to make any financial or economic decision with regard to undertake investment activities. Opportunity cost is value of the product that the consumers do not select or buy (Saccani et al. 2017). It plays a significant role in managing personal finances of any company or individual customer.

Every selection made by customers has severe consequences on his financial well-being. For instance, the decision to build a house by the individual can’t provide him with the benefits of having a car. Similarly, the act of constructing the bridge by the government can’t provide the benefits of having a hospital. Therefore, selection of any one alternative lead the individuals deprived of the benefits that can be received by choosing another alternative option. Purchase decisions involve opportunity cost of selecting the expensive option which is the calculated as the difference between the benefits from the passed up option and the benefits from the selected option.

There are various types of risks involved in choosing one option over another. For example, when an owner decides to build an office at a particular location, the opportunity costs is involved with regard to that space that it won’t be used for any purpose after that like to build a house, restaurant, etc. Moreover, there is risk involved whether the office will be able to generate required returns or not or in place of office, restaurant would be more profitable.

Determination of Equilibrium Price with The Help of Demand and Supply Curves

Demand is concerned with the quantity purchased by the customers at the given time and price. Price is defined as the amount paid by the customer to buy the particular good of service. There is inverse relationship in price and quantity demanded of a commodity which means that if the price of the commodity rises, the quantity demanded of a commodity decreases and if the price of the commodity decreases then its quantity demanded increases. This relationship is often referred to as law of demand in which all other factors that influences demand are assumed to be constant (Guan 2017).

Supply is concerned with the quantity of goods and services that the producers are willing to supply at the given price and time. There is positive relationship between price and quantity supplied of a commodity which means that the producers are always willing to supply at higher prices and with the fall in prices, quantity supplied by the producers also declines (Jaji et al. 2018). This relationship between price and quantity supplied is regarded as law of supply in which it is assumed that all other factors that affects supply remains constant.

In both, supply and demand curves, price is mentioned on the vertical axis and quantity is presented on the horizontal axis. Thus, both the curves can be presented on the similar graph. In the given table, different prices of gasoline are mentioned along with the quantity demanded and supplied at the particular price level.

Price (per gallon) ($)

Quantity demanded (millions of gallons)

Quantity supplied (millions of gallons )

1

800

500

1.20

700

550

1.40

600

600

1.60

550

640

1.80

500

680

2

460

700

2.20

420

720

Determination of Equilibrium price

Fig 1: Determination of Equilibrium price

Demand curve (D) and supply curve (S) interest at point E which represents equilibrium price of gasoline as $1.40 an equilibrium quantity as 600 millions of gallons. Equilibrium price is termed as the price at which consumers are willing to buy the commodity and suppliers are ready to supply their produce.

Non-Price Factors Affecting Demand and Supply of A Commodity

Determination of non-price factors is crucial while developing any promotional or marketing strategy in a company. Non-price factors changes depending on the climates, preferences and market influences and may vary at any particular point in the complete life span of the product. The non-price factors that may affect the demand for sand or other concrete products are income and demographics. Income is considered as one of the major non-price factors which influence the demand of a product or service significantly (Madlul et al. 2017). The ability or the propensity to buy any commodity changes with the changes in buyer’s income. When there is any expectation among the consumers that their income might increase in the near future then companies take it as an increase in the demand for the goods and services produced by them.

Similarly, when the consumers expect that their income might decrease then the demand of the company’s products will eventually decrease. Moreover, the influence of income on demand of a commodity varies with the product being sold to the consumers. For instance, demand for the high quality concrete products may decline with the fall in consumer’s income. The other major non-price factor is population which affects demand for this product. Population not only considers the number of people living in a particular region but look at the total number of buyers of their product in the market. Demand for the concrete products increases with the rise in population as now there will be more requirements for the construction of houses, buildings, offices, etc. Similarly, the demand for the product decreases with the fall in overall population.

There are several non-price factors that affect the supply for the sand and other concrete products. The number of potential sellers of a particular product affects the quantity supplied of a commodity. If there is large number of sellers present in the market then the larger amount of the commodity can be supplied in a market. Similarly, if their number is less, then the quantity supplied will also be less. Therefore, supply increases with the increase in the number of suppliers and lead to the rightward shift in the supply curve and there will be leftward shift in the supply curve if the number of sellers decreases in the market (Lynham 2018).

Other major factor which affects supply is the level of technology used by the company in developing its products and services. Better and updated technology helps the business organizations to produce more number of units at the lower cost and raise the level of profitability. This lead to the large amount of quantity supplied of product in the market and shifts the supply curve to the right side. Use of old or obsolete technology on the other hand reduces the level of productivity and thus lead to the increase in the cost of production and reduces the quantity supplied of a commodity.

Rightward shift in demand curve due to favorable change in non-price factors

Fig: 2 Rightward shift in demand curve due to favorable change in non-price factors

Rightward shift in supply curve due to favorable change in non-price factors

Fig: 3 Rightward shift in supply curve due to favorable change in non-price factors

Price Elasticity of Demand

The demand for a product can be regarded as elastic or inelastic based on the rate of change in the product’s demand with respect to change in its price (Miller and Alberini 2016). Demand for a product is said to be elastic when there is more change in demand for a product due to less change in price whereas demand for a product is said to be inelastic when there is less change in demand due to more change in its price. Price Elasticity of Demand is also regarded as the slope of the demand curve. There are several factors which affect the price elasticity of demand of a commodity like availability of substitutes, habits of consumers, nature of a commodity, time, etc. (Osundare 2018) Determination of price elasticity of demand is necessary for the manufacturer in order to identify the change in total revenue in case of change in price of a commodity.

Since, there is less availability of substitutes for the product offered by Gamma Materials Limited, therefore, the product is said to have inelastic demand. Moreover, it is considered to be an important product required for construction purpose, thus its demand is less affected by the change in price. Demand for the products of Gamma Materials Limited is considered to have relatively inelastic demand because change in price would lead to relatively less change in quantity demanded of a commodity. The product being a necessary item used for various construction purposes, its demand does not change more with the change in price. That means, even if the price of the concrete products rises, the demand will be reduced by less amount. Therefore, the total revenue earned by the company would be less affected in case change in price of its products.

Relatively inelastic demand

Fig 4: Relatively inelastic demand

Market Structure

There are different types of market structures in a economy in which the firm carriers out its operations, namely, perfect competition, monopoly, monopolistic competition and oligopoly, etc. (Zeder 2020). Each type of market structure has its own characteristics and follows different assumption patterns that influence the firm’s decision making process. Gamma Materials Limited is considered among the oligopoly – type of market structure as there is less number of sellers of the products that are offered by this company and comparatively large number of buyers. These small numbers of firms follow two options, that is, they either compete with each other or simply collaborate with each other in order to raise profitability and market share (Azar and Vives 2019).

Prices in this market are set by using the market influence and thus lead the customers to be the price takers in the market. There are several entry barriers which are imposed on the new entrants to enter this industry. Also, the cost of technology used in these firms is also very high which is not affordable for many new investors who want to enter this market. For instance, large amount of physical and financial resources are required to set up any firm offering materials thus making it difficult for the new firms to enter this type of industry. Products offered are generally homogeneous or similar and few large firms dominate the whole market. Various legal, technological and economic factors highly contribute in the maintenance and formation and dissolution of oligopolies. The government policy followed in a particular country has the power to encourage or discourage the behavior of oligopolistic firms.

Kinked demand curve under oligopoly

Fig 5: Kinked demand curve under oligopoly

Derived Demand

Derived demand is defined as the demand for a particular good resulting from a demand for other related goods (Amir et al. 2017). It comprises of mainly three components, namely, labor, raw materials and processed material. Goods can only be produced with the help of adequate amount of labor. Demand of products and services greatly influences the level of demand for the labor. For instance, more number of workers is required in order to cater with the large scale of demand. Moreover, labor demand depends on the level of their productivity, overall profitability and the price of the product (Press Books 2018).

There are several factors which influences the demand for labor by the producers. When demand for a particular commodity increases, the price of the produce and the profitability of the enterprise increases. Thus, the manufacturers demand for more labor to meet the production requirements effectively and efficiently. Technology is another major factor that affects the demand for labor. The requirement of the labor substantially reduces with the adoption of technology by the business organization.

Minimum wage is the amount which is set by the government officials making it illegal for a company to pay its laborers lower amount of wages than a standardized rate (ILO 2020). The main aim of setting the minimum wages is to safeguard them from the merely low payments. They must be paid that much amount that will help them in covering basic needs of themselves and their families. Rise in the minimum wages would lead to the reduction in overall demand of the low skill workers. The firm will try to minimize the requirement of labor in order to cut down its expenditure.

Equilibrium wage rate of labor

Fig 6: Equilibrium wage rate of labor

Technological change and low skilled labor

Fig 7: Technological change and low skilled labor

Population rise leads to increase in demand of labor

Fig 8: Population rise leads to increase in demand of labor

Conclusion

It can be concluded that Gamma Materials Limited is performing well in the industry. The demand for the products offered by the company would definitely rise in the near future as the population is increasing at a rapid pace. This will further enhance the revenue and profitability of the company. It follows oligopoly type of market structure which provides it with the necessary power to exercise effective control over the prices of its commodities. Change in technology may significantly affect the production capacity of the firm and thereby influence its share in the market. Continuous improvement measures are required to accomplish set goals and objectives in a stipulated time frame.

References

Amir R, Erickson P and Jin J (2017) On the microeconomic foundations of linear demand for differentiated products. Journal of Economic Theory169, pp.641-665.

Annual report (2018) Gamma Materials Limited. Available at: https://www.gamma.mu/sites/default/files/press-releases/gcl_annual_report_2018.pdf [accessed 28 April 2020].

Azar J and Vives X (2019) General Equilibrium Oligopoly and Ownership Structure. Available at SSRN 3501611.

Gamma (2019) Our strategy. Available at: https://www.gamma.mu/our-strategy [accessed on 29 April 2020].

Gamma (2019) The world of Gamma. Available at: https://www.gamma.mu/ [accessed 29 April 2020].

Gamma Materials Limited (2019) The beginning of Gamma Materials Limited. Available at: http://gammamaterials.mu/qui-sommes-nous/ [accessed 29 April 2020].

Guan D X (2017) Transaction Cost and the Law of Demand.

ILO (2020) What is a minimum wage. Available at: https://www.ilo.org/global/topics/wages/minimum-wages/definition/WCMS_439072/lang--en/index.htm [accessed 29 April 2020].

Jaji K, Man N and Nawi NM (2018) Factors affecting pineapple market supply in Johor, Malaysia. International Food Research Journal25(1).

Lynham J (2018) 4.1 Demand and Supply at Work in Labor Markets. Principles of Microeconomics-Hawaii Edition.

Madlul NS, Bakar R and Lubis Z (2017) The Influence of Price and Non-Price Factors on Maize‎ Supply in‎ Iraq:‎ An‎ Econometrical‎ Analysis. Imperial Journal of Interdisciplinary Research (IJIR)3(7), pp.592-605.

Miller M and Alberini A (2016) Sensitivity of price elasticity of demand to aggregation, unobserved heterogeneity, price trends, and price endogeneity: Evidence from US Data. Energy Policy97, pp.235-249.

Osundare F (2018) Buying Habits and Cross Price Elasticity of Demand for Certified Maize and Rice Seeds in Ondo and Ekiti States, Nigeria.

Press books (2018) Demand and supply at work in labor markets. Available at: https://opentextbc.ca/principlesofeconomics/chapter/4-1-demand-and-supply-at-work-in-labor-markets/ [accessed 29 April 2020].

Saccani N, Perona M and Bacchetti A (2017) The total cost of ownership of durable consumer goods: A conceptual model and an empirical application. International Journal of Production Economics183, pp.1-13.

Zeder R (2020) The four types of market structures. Available at: https://quickonomics.com/market-structures/ [accessed 28 April 2020].

Remember, at the center of any academic work, lies clarity and evidence. Should you need further assistance, do look up to our Economics Assignment Help

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