Market Analysis Project

Microeconomics - Fall 2021

Iqra University – Islamabad Campus
In this project, you will work in 3-5 person groups to model and analyze a market
of your choice using the theoretical methods you have learned. This is your opportunity
to think creatively and choose a market that you care about.

The Market Description (1 page)

You should write three or four prose paragraphs about a market. First provide the basic
facts about the market: What is being produced and/or exchanged? Is this a local or
global market? Where are the agents? Who is doing the buying and selling?

You should also describe what is interesting about the market. Are there important
externalities (positive or negative)? That is, are people outside the market affected by
market activity? Do any of the agents involved have less than complete information?
Are there any relevant regulations or government involvement that affect the market?

Examples of Market:

 Solar panels: Once a system is installed, solar panels provide free, clean
electricity. The alternative is electricity from the power grid which has no fixed
cost, but substantial variable costs. The government subsidizes these fixed costs
because of the pollution externalities present in most electricity provided from the
grid.
 Health insurance: This is a market plagued by “adverse selection” as individuals
often know more about the state of their health than insurance providers. Once
insured, people have lower incentives to invest in their health. This is called
“moral hazard.” Insurance contracts and many government regulations try to
address these two impediments to economic efficiency.
 Low skill labor: You might choose to think about how firms decide whether to hire
low skill labor locally or outsource production to countries where wages are
lower. What is the impact of the minimum wage on such a market? How might
other regulations/tariffs affect this market?
 Country songs: Markets for intellectual property differ in interesting ways from
physical markets. In country music, most songs are not written by the artists who
record and perform them. Instead, most songwriters try to sell their work to
publishers who in turn sell those songs to the artists.

Be creative! The market you choose is not set in stone–You will be able to modify or
change your choice later if you need to.
Part 2: Preferences and Production
Description (3-4 pages)
1. Describe in detail the characteristics of the consumers in the market. What does
demand look like? Is it elastic or inelastic? Are there obvious substitute goods
available? Are there important complements? Is there decreasing marginal utility
of consumption?
2. If your market has producers:

a) Describe the production process in detail. What are the fixed costs? What
are the variable costs? What are the production inputs?
b) Write down a production function and justify its functional form.
c) Derive the cost function and prices of inputs. (You do not have to be
accurate)
d) Use the cost function and output prices to set up a firm’s profit
maximization problem. (You do not have to be accurate)

3. Are there any rules in your market? If yes, please describe them.

Part 3: Market Analysis (5-10 pages plus

poster)
1. Describe the distribution of firms and consumers in the market. Are there only a
few on one side or both sides? Is there a mix of very different kinds of firms? Or
consumers?
2. uDescribe any important constraints or regulations on the market.
3. If possible, solve for the equilibrium outcome.
4. Say something interesting about the market.

For instance : a. How would changes in input prices affect the market
equilibrium? b. Is there a policy that if implemented would improve efficiency?
c. What implications would an improvement in production technology have? d.
Is the market outcome efficient? e. How is market surplus divided between
consumers and producers/sellers?

Submission
You will submit the following in this project:

1. A combined report of 10 – 15 Pages.

 2. A PowerPoint presentation of 5 mins in which 2-3 group members will
present their project to the entire class. Those group members who are
not presenting will present the posters.
The decision of the presenter will be done by the instructor at the spot.
3. A poster containing only the most important pieces of your analysis—you
won’t have room to put down everything you do.
The posters will be displayed in the class along with the presentation. BE
CREATIVE!

Deadline
1. Report Deadline: 31 December, 2021
2. PowerPoint Presentations: Last two weeks ( 27 December, 2021 to 7th
January, 2022)
3. Poster: Along with the Presentation.