PGPM Managerial Economics 2025-26 – Mini Cases for Microecon

Session 1 - India’s exports – a tale of incentives

India boasts a vast production capacity in one industry. The country is the world’s
third-largest exporter of industrial products, which are essential for any economy
to function. No other sector in India can claim this distinction.

One disturbing fact, however, is that it benefits very few Indians. Over 90% of the
value generated in this sector accrues to capital owners. Thus, the positive wealth
effect of these exports is limited. As it is one of the least labour-intensive
industries, it employs only around 300,000 people. Almost all its raw materials are
imported, resulting in the highest foreign value-added content in Indian exports
among all industries and low employment generation via backward linkages.

It appears unthinkable for this to have occurred. But it did.

This is India’s refined petroleum industry, contributing more than 20% to our
merchandise exports in value terms.

Contrast this with India’s leading services export: information technology (IT).
Today, its exports in value terms are 1.5 times that of petroleum exports. Back in
2012-13, both were at nearly similar levels. The domestic value-added content of
IT exports is among the highest. The labour share of value addition is only a bit
less than 50%, compared to under 10% in refined petroleum. Close to 60% of
employment in the sector is related to exports. Direct employment by IT services
in India is estimated at 5.1 million, so about 3 million jobs are export-related. IT
services have backward and forward linkages in sectors like transport, hospitality,
security, housekeeping services, and personal services, apart from the demand
their employees generate for real estate, consumer durables, etc.

While refined petroleum and IT are poles apart in their import content of exports,
employment generation and the share of labour income, their evolution is a classic
example of the two most important words in economics: incentives matter.

The development of the two industries relates to policy incentives. What were
those? What are the implications for the Indian economy?

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Concepts covered – Key idea in economics: Incentives matter. Trade-offs and
opportunity cost, unintended consequences of a price cap

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Session 2 – Tomato and Onion challenge

Given that tomatoes and onions are essential food items in most Indian
households, relatively low-income families face the brunt of it in terms of
household expenditure when these prices shoot up, and without notice. In India
over the last few years, onion prices have ranged from approximately Rs 15 to
over Rs 100 per kilogram, with government interventions attempting to stabilise
prices at Rs 40-45 per kilogram in regulated markets. Tomato prices showed even
greater volatility, ranging from Rs 10 to over Rs 200 per kilogram in retail markets.

The Ministry of Consumer Affairs, Government of India announced a strange-

sounding competition on 30 June 2023: a ‘Tomato Grand Challenge’ hackathon.

https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1936522

A year before that, there was an ‘Onion Grand Challenge.’ Both came after the
prices of these commodities had risen sharply. The objective is to encourage
citizens to share ideas to ensure the availability of tomatoes and onions at fair
prices for both consumers and producers.

Should producers of essential commodities be allowed to hoard their produce?

How should India solve the volatile production issue and farm produce prices,
especially fruits and vegetables?

Analyse the above situation in terms of demand and supply curves and come up
with your answer either in support of hoarding or against it.

Concepts Covered – market supply, market demand, the market equilibrium,

hoarding (storage), supply chain, elasticity of demand/supply

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Session 3 – Where is the Indian Rupee headed?
The Indian rupee has been hovering around 84 Rs per US$ recently. It has
steadily depreciated over the years. Currently, the world economy is going through
uncertain times, with wars and tariff wars impacting several key variables, such as
the international oil price, which influences the currency value.

Think about the following four events affecting a country's exchange rate.

For each event, think about the first round of impact on the demand or supply
curve and how the curve will shift (inward/outward). Determine the new equilibrium
after each impact.

a) Crude oil price falls

b) Capital outflow from emerging countries, including India due to growing
economic uncertainty.
c) RBI supplies US$ in the domestic market to lower the shortfall.
d) The crude oil price increases as the global shocks subside.
Where do see the Rupee value by the end of 2025?
Concepts covered – Shifts of demand and supply curve, evaluating changes to
market equilibrium

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Session 3 – What’s brewing in India’s credit market?

The Indian economy is currently facing an uncertain global external environment.
Firms and retail borrowers have become risk-averse. Households are saving more
and reducing their consumption. Banks need to analyse the likely impact on the
demand for credit and supply of savings in the banking system. This has
implications for the interest rates in the banking system.

What will the new equilibrium interest rate and the quantity of credit/savings be if
both of the above effects materialise? Is there an ambiguous answer? Draw the
required diagrams.

Concepts covered – Elasticity of demand and supply, shifts of demand and

supply curve, changes to market equilibrium, and ambiguous market outcomes

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Session 4 – Why is the war on drugs (or even tobacco or alcohol) hard to
win?
Worldwide, there is a growing epidemic of drug usage. Several governments have
come down hard in the past by prohibiting the buying and selling of hard drugs. In
some countries and regions, alcohol sales are banned as well. he United Nations
Office on Drugs and Crime has estimated the global illicit drug market at
approximately $650 billion annually, suggesting that prohibition has not eliminated
demand or supply.

What does the prohibition imply for the supply of a product? How does the new
market equilibrium change after the prohibition?

Is there an alternative solution? What is it, and if successful, how will it impact the
market equilibrium? Can this framework be used to analyse other economic/social
situations?

Concepts covered – unintended consequences, elasticity of demand, elasticity of

supply, trade-offs, market dynamics

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Session 4 – Redemption of child slaves using economic rationale
In 2000, amidst Sudan's devastating civil war, Jay Williams, a 19-year-old Harvard
sophomore, joined a delegation to Sudan organized by the American Anti-Slavery
Group and Christian Solidarity International (CSI). During this mission, Williams
participated in the controversial practice of "slave redemption," where
organizations purchased the freedom of individuals captured in raids by northern
militias. Williams had first learned about Sudan's slavery crisis at a gospel concert
fundraiser in December 1999 and felt compelled to act, stating, "I just couldn't help
but get involved... there's still one of the most primitive forms of human existence
in the world."

His journey with five others to Sudan resulted in helping to free over 4,400 slaves,
primarily women and children who had been forcibly taken from their families
during the conflict. However, there was a catch. As more details emerged, it

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turned out that many people in Sudan were kidnapped and brought into slavery
because of the slave redemption program.

What do you think may have happened to the supply and demand of slaves (it was
the unfortunate situation of a market of slaves) because of the NGO’s intervention,
even though their intentions were noble? What do you think was the
responsiveness of the slaves supply during anarchy? What may have happened to
domestic demand?

Concepts – economic principles in social contexts, elasticity and shifts of market

demand and supply, and impact on market outcomes

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Session 5 - The Sugar industry is in trouble despite surplus production
Consuming too much sugar may have adverse health effects - it's better to enjoy
sweet treats in moderation! It is also one of the food products which has seen very
little price rise in India in the last decade despite a huge increase in demand for
sugary products.

Given the rise in prices of other food items during the same period, the relative
price of sugar has dropped sharply. This makes sugar more affordable, leading to
higher consumption.

India is one of the world's largest sugar producers, but the industry is in trouble,
with many sugar mills in the red. The government controls the input price, which
affects the production cost of sugar.

What exactly is the problem and how should India solve it?

Concepts – Price floor, minimum support price, market, distortions, market

surplus

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Session 6 - Sri Lankan Price Ceilings
In 2021, amid a worsening economic crisis, Sri Lanka's government implemented
price controls on 27 essential food items including rice, sugar, and milk powder.
The country was already struggling with dwindling foreign currency reserves and
mounting external debt, when authorities decided to regulate prices to protect

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consumers from inflation. The government even declared a state of emergency
that gave officials the power to seize food stocks from traders accused of
hoarding.

The situation created a fascinating economic experiment. Traders who had

purchased goods at higher market rates now faced official price ceilings below
their acquisition costs. Meanwhile, import restrictions implemented to preserve
foreign currency further restricted the supply. When the government finally lifted
these price controls several months later, the market experienced significant price
adjustments, with some items seeing increases of over 30%.

How did market participants respond to the price controls? What happened to the
availability of essential goods? How did black markets function during this period?
What were the distributional effects of these policies across different segments of
society? What alternative approaches might have better addressed the underlying
economic challenges while protecting vulnerable citizens?

Concepts – Price Ceiling, market distortions, black market, shortage, inferior

quality

Session 7 – Challenges of Production Cost – The case of Off the Cob

Off the Cob was a unique tortilla chip company founded by Cameron Sheldrake,
who appeared on Shark Tank in the United States. The company produced tortilla
chips made from sweet corn rather than the traditional grain corn used in most
chips. Off the Cob's product had a distinct selling proposition - offering a sweeter,
more natural corn flavour while being organic, non-GMO, gluten-free, cholesterol-
free, and trans-fat free.

Sheldrake, the producer, sought $100,000 for a 15% equity stake in his company.
During his pitch, he revealed that each bag of Off the Cob chips cost $0.85 to
manufacture, was sold wholesale for just under $2.00, and retailed for $3.49. This
pricing structure represented a significant premium compared to conventional
tortilla chips that might retail for around $0.99 for a similar size.

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Sheldrake paid approximately $5.50 per pound for sweet corn flour, while
conventional grain corn flour cost only about $0.30 per pound—a nearly 20-fold
difference.

How would you analyse the implications of the input cost for output pricing? Do
you think the demand curve for his chips is elastic or inelastic? What implications
does it have for the product's price and revenue? Should the Shark invest in this
unique product?

Concepts – Cost production, variable cost, demand elasticity, scale economies

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Session 8 – Pharmaceutical Pricing Strategies

The case of GlaxoSmithKline's differential pricing for Combivir across markets

demonstrates a sophisticated approach to global pharmaceutical pricing. As the
patent holder for this critical anti-AIDS medication, GSK implements a market-
segmented pricing strategy that charges European consumers $12.50 per pill
while making the same medication available to African consumers at just $0.50
per pill.

This dramatic price differential reflects both market realities and strategic business
considerations. In European markets, higher average incomes, robust insurance
systems, and greater willingness to pay allow for premium pricing. Meanwhile, in
African markets, where economic constraints are more severe and the ability to
pay is limited, the drastically reduced price enables broader access while still
covering production costs and contributing incrementally to the company's overall
revenue.

If GSK were constrained to adopt a single worldwide price point, what would be
the price and public health consequences? What are the alternative possibilities
for the firm and how it would impact financial viability?

Concepts – Monopoly, price discrimination, profit maximisation, consumer surplus

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Session 9 – Starbucks Meal Deals: A Strategic Pricing Approach

Starbucks has evolved its menu offerings over the years from primarily coffee to
include various food items, with meal combinations that package together
beverages and food items at a special price point. When customers purchase
these combinations rather than individual items, they typically pay less than if they
had purchased each component separately. For example, a morning combination
might include a tall latte and breakfast sandwich for a price that's approximately
15% less than purchasing these items individually. This approach allows
Starbucks to increase the average transaction value while giving customers a
perception of greater value.

The company's approach to these combined offerings has strategic implications

for both revenue management and customer behaviour. The economics of this
strategy depend on carefully calculated margins across both product categories
and an understanding of the price sensitivity for different customer segments.

How does Starbucks employ the price discrimination strategy of bundling by

making a meal deal? Which other industries routinely use bundling? Can
consumer surplus and a firm’s profit both increase under this pricing strategy,
creating a win-win situation?

Concepts – Price discrimination, bundling, profit maximisation

Session 10 - The Inherent Instability of OPEC's Production Agreements

Since its formation on September 14, 1960, by five founding nations (Iran, Iraq,
Kuwait, Saudi Arabia, and Venezuela), the Organisation of Petroleum Exporting
Countries (OPEC) has attempted to coordinate oil production among member
nations to maintain price stability and maximise collective revenue. Over its six-
decade history, OPEC has repeatedly experienced periods where member nations
secretly exceed their agreed-upon production quotas.

This behaviour stems from fundamental economic incentives - when prices are
high due to production restraint, each individual member can dramatically increase

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their revenue by modestly increasing output while others maintain discipline. As
long as only one or a few members ‘cheat’, they can enjoy the benefits of high
prices (maintained by others' restraint) while selling additional volume. The
temptation becomes nearly irresistible during periods when national budgets face
pressure, creating a classic prisoner's dilemma where rational individual behaviour
undermines collective interests. Do cartels always break down? What can prevent
cartel members from cheating on the cartel agreement?

The stronger OPEC's market influence becomes through successful coordination,

the more it sows the seeds of its undermining through both internal and external
mechanisms. Internally, periods of high prices and restricted output increase the
rewards for quota violations, straining the trust essential to cartel maintenance.
Externally, sustained high prices trigger powerful counterforces in the global
energy marketplace. Many countries have intensified investments in alternative
energy sources, energy efficiency measures, and previously uneconomical oil
extraction methods like shale oil production and deep-water drilling.

These investments, once made, permanently alter the market structure by creating
sustainable alternatives to OPEC oil. Additionally, non-OPEC producers with
substantial reserves, like Russia, Norway, and Brazil, expand production capacity
during high-price periods, gradually eroding OPEC's market share and pricing
power. Does the cartel face a paradoxical constraint - exercising too much market
power today accelerates its long-term decline by catalysing structural changes in
global energy markets?

Concepts – pure oligopoly, cartel, game theory

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