Course material

1. Answer: Part 1 a) Crocs is a footwear company that
Answer:
Part 1
a) Crocs is a footwear company that has lot of fan following currently that led to high sales
growth in the past year. On the contrary, this was not the case since its inception. It should
be noted that when it was first introduced with its unique look, it was criticized as one of
the ugliest shoes in the market. The criticism not only came from the general customers but
from the celebrities as well (McKinnon 2021). Despite of criticism the company has been
able to establish a position for itself. The major reasons for its growth are the marketing
strategies that the company has taken. The company never tried to alter its look and tried to
redesign their products. Rather, they kept their introductory design and developed new
products based on the old design. It means they use the look to make it their trademark. It
should be noted that the objective of the company was to create its own identity through its
product. Currently, looking at the product a person can easily say if the product is from
Crocs or not (Segran 2021). Apart from that, the company has taken an innovative way of
promoting its products by collaborating with the celebrities who like and use their
products. The concept behind this was that the people remain curious of knowing if the
celebrities who promote the products do actually use the products or not. Thus,
collaborating with Justine Bieber and Bad Bunny who loves Crocs puts the company in an
advantageous position. Further, the company used the marketing strategy of limiting
distribution. Under the strategy, the company introduced few limited edition products that
could be purchased until the stock lasts. Due to this reason, products bad Bunny’s Crocs got
sold out very fast (Bhattarai 2021). Again, the company has the helped the society by
providing healthcare workers 0.9 million pairs of shoes and this helped to create the social
face that adds to the brand value of company. Further, it is found that the company used the
Social Networking Platform effectively. It lowered advertisement investments on other
platforms and increased on social networking and online platforms (Elan 2021).
Additionally, the colour of Crocs’ shoes are unique that helped the company to create its
own market. Further, Crocs targeted the customers who love the product and never tried to
attract its haters. Eventually, those haters become lovers as well with growth of the
company and rising amount of sales. The growth of the company is evident from is rise in
sales the in 2020 and 64% rise in sales in first quarter of 2021.

2. Figure 1: Demand for Crocs’ shoes
Source: (Created by the Author)
The marketing strategy of the Crocs found to be effective in helping the company to grow. It
is evident from growing sales of the shoe of the company has increased over the years from
2017 to 2020. From data it is found that in 2017 the revenue of Crocs was $1.02 billion and
in 2018, 2019 and 2020 it increased to $1.09 billion, $1.23 billion and $1.39 billion
respectively (Annualreports.com 2021). Rise in sales revenue indicates for four continuous
periods is possible only when there is rise in sales of the company. Further, it is found that
in 2020 the company sold 19 million pairs of shoes. Therefore, this rise in sales has caused
due to increase in demand for Crocs (Bain 2021). Hence, the increased demand for Crocs
shoes led to right shift of the corresponding curve from D1 to D2 as shown in Figure 1.
Owing the shift of the demand curve the economy of the equilibrium price and quantity of
Crocs shoes increased to P2 and Q2 respectively.
Figure 2: Crocs’ shoes price elasticity of demand
Source: (Created by the Author)
Crocs is one of the popular shoe producing company in the world. It is found that people
who love to wear Crocs do continue to use their products irrespective of the change in price.
Further, it is found it is found that even after rise in price of Crocs the sales revenue of the
company has increased over the last few years (Core-econ.org. 2021). From the theory of
price elasticity of demand (PED) it is known that rise in revenue occurs even after rise in
price occurs on when the demand is price inelastic. It is assumed that the price increased
from $60 to $75 and that is why the quantity demanded declined to 9 million from 10
million.
Thus,
PED = % change in Q/ % change in P
Or, PED = {(9 – 10)/10 × 100}/ {(75 – 60)/60 × 100}
Or, PED = - 10%/ 40%
Or, PED = - 0.25
Hence, Crocs’ demand is price inelastic.

3. When continuous innovation creates new products but it leads to replacement of an existing
product then it is called creative destruction. Crocs is one such companies that causes
creative destruction by introducing products of natural resin, slip on clog fit and shifted the
trend from stylish to comfortable shoes. Additionally, the company introduced croslite a
newly developed raw material that reduces the carbon footprint and thus makes the
production more environments friendly (Pillai 2021). The trend of footwear industry
shifted from leather to non-leather products.
b)
Figure 3: Crocs’ gains from trade and deadweight loss
Source: (Created by the Author)
Figure 3 shows the deadweight loss and gains from trade in case of Cros when Classic Clogs
are sold at average price of $60. It should be noted that, $35 is the unit cost of producing
Classic Clog (Crocsaustralia.com 2021). In the figure PS is the area depicting producer
surplus and CS is the area that shows the consumer surplus and along with that area DWL
shows deadweight loss. Here, CS is the gain a consumer makes after buying Crocs and PS is
the gain producers make after selling Crocs shoes. On the other hand, DWL is the loss in
social welfare. Further, gains from trade is nothing but total surplus which is given by sum
of PS and CS. Again, in the figure maximum price customers’ willing to pay is shown as $100
per unit.
Therefore,
Price elasticity of demand = % change in Q/ % change in P
Or, Price elasticity of demand = {(4 – 6)/6 × 100}/ {(60 – 35)/35 × 100}
Or, Or, Price elasticity of demand = - 33.33%/ 71.43%
Or, Price elasticity of demand = - 0.57
Now,
CS = 0.5 × (100 – 60) × 4 = $80 million
PS = (60 – 35) × 4 = $100 million
Gains from trade = TS = CS + PS = 80 + 100 = $180 million

4. DWL = (60 – 35) × (6 – 4) = $50 million
Part 2
a)
Figure 4: Demand and supply curve of petrol
Source: (Created by the Author)
The market for petrol in Australia is shown in Figure 4. In the figure, the supply curve is
shown as S1 and on the other hand demand curve is shown as D1. It is observed from the
shape of demand curve and supply curve given in Figure 4 it is clear that both of them are
steep. The steep shape indicates price inelasticity. Therefore, based on this concept it can be
said that both the supply and the demand for petrol are price inelastic
(Markets.businessinsider.com 2021). The reason behind price inelasticity of demand for
petrol is absence of close substitute. Electric vehicle has not yet captured the vehicle market
and around 90% of the vehicle in the world, run on petrol. Further, the transport is a
mandatory part of life and thus petrol is a necessary product and thus its demand is price
inelastic (Pupavac, Maršani? and Krpan 2020). Again, petrol is produced naturally and due
to that reason the petrol supplying companies need to depend on number of drills present
and the amount of petrol present in them. Further, the storage capacity of petrol is limited
as well. Therefore, it can be said that supply of petrol is price inelastic.
b) After the outbreak of COVID 19 pandemic the government of Australia imposed
lockdown measures. Due to that reason, people could not go outside their home. As a result,
the use of vehicles lowered and thereby the demand for petrol reduced causing its demand
curve to shift to left.
c)
Figure 5: Future of petrol market
Source: (Created by the Author)
In coming future with rise in awareness regarding climate change people would reduce use
of products that would worsen the global warming condition. Due to this reason there will
be fall in amount of demand for petrol (Marsh 2021). This would shift the demand curve
inwards to D2 from D1. Further, the amount of petrol is limited and with time its availability
would fall. Along with that, with decreased demand there will be fall in profitability of petrol
business and thus the producers would switch to other business leading to fall in supply

5. causing the corresponding curve to shift inward from S1 to S2. As a result, in future there
will be fall in quantity traded of petrol from Q1 to Q2.
Reference
Annualreports.com. 2021. "Crocs Inc.". Annualreports.Com.
https://www.annualreports.com/HostedData/AnnualReports/PDF/NASDAQ_CROX_2020.p
df.
Bain, Marc. 2021. "Crocs Are Now Mainstream Footwear, Like It Or Not". Quartz.
https://qz.com/2036832/crocs-are-now-mainstream-footwear-like-it-or-not/.
Bhattarai, Abha. 2021. "Love Them Or Hate Them, Crocs Are Back". Washingtonpost.Com.
https://www.washingtonpost.com/business/2021/06/03/crocs-pandemic-surge/.
Core-econ.org. 2021. "Unit 7 Firms And Markets For Goods And Services". Core-Econ.Org.
https://www.core-econ.org/espp/book/text/07.html#76-gains-from-trade.
Crocsaustralia.com 2021. "CLOGS FOR MEN". Crocsaustralia.Com.
https://www.crocsaustralia.com.au/c/men/footwear/clogs.
Elan, Priya. 2021. "Crocs To Change Clogs’ Ingredients To Be Bio-Based By 2022". The
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McKinnon, Tricia. 2021. "Crocs’ Marketing Strategy. How It Turned An “Ugly” Shoe Into A
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https://www.indigo9digital.com/blog/crocsmarketingstrategy.
Pillai, Surya. 2021. "Green Comes In Every Color: Crocs Introduces New Bio-Based Croslite™
Material To Lower Carbon Footprint Of Its Iconic Footwear | Business News This
Week". Business News This Week. https://businessnewsthisweek.com/business/green-
comes-in-every-color-crocs-introduces-new-bio-based-croslite-material-to-lower-carbon-
footprint-of-its-iconic-footwear/.

6. Pupavac, Drago, Robert Maršani?, and Ljudevit Krpan. 2020. "Elasticity of demand in urban
traffic case study: City of Rijeka." Periodica Polytechnica Transportation Engineering 48, no.
2: 173-179.
Segran, Eizabeth. 2021. "‘Yes, We’Re Ugly, But We’Re One-Of-A-Kind’: How Crocs Went
From Laughingstock To Red Carpet". 2021. Fast Company.
https://www.fastcompany.com/90669642/yes-were-ugly-but-were-one-of-a-kind-how-
crocs-went-from-laughingstock-to-red-carpet.