1.

Statements of facts:
The most important thing about economics is Supply equals demand. We chose Rickshaw-pulling in Dhaka city as our topic for the project on Micro Economics. We have observed consumers behavior, rickshaw pullers behavior and how they interact through a survey. Here we have tried to explain the actions of all consumers and rickshaw pullers. Our focus is on some cases where it seems that supply does not equal demand or seems to be unusual but actually it also creates equilibrium. In every case of our project we have considered price as the dependent variable and the number of rickshaws (under some other variables like timing, route, weather etc.) as the independent variable. In our report we have considered the total number of rickshaws do not increase radically, because of some barriers to entry like- license, rickshaw pullers and rickshaw owners unions policy etc. Due to some environmental or other factors the available number of rickshaws may vary time to time.

2.0 Definitions:
We have used the following terms as per the given definitions through out our report.

2.1 Market: In our project profile the existing market includes the

producer or supplier, rickshaw pullers and the customers or the mass people. The market is considered as regional one which varies in place to place factors. The market structure is assumed as There are many buyers and sellers, each too small to affect the price. The commodity is homogenous. There is perfect mobility of resources. Economic agents are concerned about market conditions (price & cost). As per our assumption, there sustains a perfect competition in the rickshaw pulling service market.

2.2 Product: According to the report the product is rickshaw pulling

service of transportation sector. Though not close, it has substitutes like auto-rickshaw, taxi-cab, bus, private car etc. But the consumers do not have definite complement here. Here we have covered the Dhaka Metropolitan City area. The market is made up of different cluster regions. We have chosen different route/ location for various factor analyses.

2.3

Geographic

market:

3.0 Analysis:
We have analyzed some of our observations considering the statement of fact and the aforementioned definitions.

3.1 Fuel price factor:

Price level of automobile fuel has critical impact on rickshaw fare. As the fuel price increases, some auto-rickshaw users quit using auto rickshaws. They switch to rickshaws. The demand for rickshaws therefore increases. The supply of rickshaws in a certain route remains constant and movement along the supply curve occurs. Higher demand along with constant supply takes the equilibrium into higher price. We sought out there had been two increases of fuel price since 2001. Price of petrol per liter rose to Tk. 23 in April, 2001 from Tk. 22 and reached to Tk. 25 in March, 2002. In this report, we found the demand curve for rickshaws more inelastic. Most of the respondents rarely use any other transportation. Our findings showed that as a result of hike in oil price, auto-rickshaw fare rose by Tk. 5. Among our 31 respondents, 7 used to take auto-rickshaws before first oil price hike. After the price increase they preferred to leave auto-rickshaws and pick rickshaws. So, the demand for rickshaws increased by 36.84% and the demand curve shifted rightward while supply was the same. To avoid complexity regarding this factor, we have taken into account two routes: Green Supermarket to University and Sobhanbag to University. Both the routes had rickshaw fare of Tk. 12 in March, 2001. Then both fares were standing at Tk. 15. In these routes rickshaw supply is roughly the same. But the number of people willing to take rickshaws had increased. So the price went up and the higher demand curve sets the equilibrium point at a higher price. Due to the second oil price increase auto-rickshaw fare increased further by Tk. 5. So, from Tk. 25 auto- rickshaw fare turned to Tk. 35. As a result, 5 of our respondents quit auto- rickshaws in this blow and the demand for rickshaws increased further. With the same supply of rickshaws the demand increased by 19.23% to shift the demand curve further rightwards. This time rickshaw fare also increased by Tk. 3. It is now Tk. 18 from Sobhanbag to University as well as from Greenroad to University.

3.2 Weather (Rain) factor:

There is a distinct impact of weather on the demand-supply of rickshaw pulling service. If the weather becomes a little bit rough, the tendency of not going among the rickshaw pullers increases. Consequently, the supply of rickshaws decreases. But the demand of rickshaws increases to the people, as most of them have to depend on it for the inconvenience of availing substitute vehicles. Even one has to get on a rickshaw to cover a walking distance. For all these, the demand of rickshaws goes up. At the normal weather the rickshaw fare from University to Greenroad is Tk. 15 (according to normal time equilibrium) when there are other substitutes. But while it is raining people from university to Greenroad

choose rickshaws for convenience. As a result, there is an increased demand for rickshaw and thus the demand curve shifts to the right. On the other hand, the supply decreases due to less availability and consequently, the supply curve shifts to the left. So the new demand curve and new supply curve come to a new equilibrium point where the fare is Tk. 20, whereas the equilibrium quantity in normal weather and in rain remains the same. Here the equilibrium fare difference is a wedge (Rain) which is Tk. 5. The increase in demand due to rain and the decrease in supply could have a different equilibrium quantity but the reasonable increase in fare fixes the equilibrium at the same equilibrium quantity.

3.3 Occasional factor:

During Eid or any other national or religious festivals there is a raise in the demand for rickshaws which results to a higher fare. Let us consider the route of Farmgate to Newmarket. In this route all the consumers are willing to pay Tk. 8 but no rickshaw puller will agree to go in that fare. When the price is Tk. 10, 80% of the customers will agree to go, but only 50% of the rickshaw pullers will agree to go. At Tk. 12, 67% of the customers as well as rickshaw pullers will agree to go. At Tk. 15, 33% of the customers will agree to go but 76% of the rickshaw pullers are willing to go. After that the demand for rickshaws becomes much flatter and at Tk. 20 there is no demand for rickshaws but at that point there is a supply of all the rickshaws. Due to Eid there is a change in factors other than price. So the demand for rickshaws shifts right ward in this case. Interestingly there is no shift in supply curve for the rickshaw pullers but the consumers face a shift in supply. So, the equilibrium shifts and at the new equilibrium the fare is Tk. 17. Though the supply of rickshaws does not increase according to higher demand, we observe more rickshaw movement in the streets in these occasions. This situation occurs due to a certain economic condition known as leisure-income choice.

3.3.1 Leisure-Income Choice:

The rickshaw pullers usual work hour is 8 hours a day (which is a fixed line). At normal time they prefer 6 hours of work and 2 hours of leisure. During Eid occasion when the rickshaw fare as well as rickshaw pullers willingness to earn goes up, they tend to work more hours. Here high fare per trip causes them to consume less leisure and work more. That is the consideration of opportunity cost for leisure, provokes them to work one hour more. So, due to occasion factor the demand for leisure decreases and consequently supply of working hours increases. As a result, it seems that more rickshaws are moving during Eid occasion, though the supply remains constant for this increased demand.

We have analyzed three different scenario- oil price factor, weather factor and occasional factor to show the application of demand-supply model in rickshaw fare in Dhaka city. Apparently it seems that there exists an imperfection in market mechanism. But the substitution effect, wedge (Rain) and the leisure-income choice explains the actual fact and proves the validity of demand-supply model. The aforementioned factors are also covering the gap between the should be equilibrium point and the existing market equilibrium point.