Tag: Demand

Demand Estimation – With Sample Answer

Assignment Instructions

Imagine that you work for the maker of a leading brand of low-calorie microwavable food that estimates the following demand equation for its product using data from 26 supermarkets around the country for the month of April.

For a refresher on independent and dependent variables, please go to Sophia’s Website and review the Independent and Dependent Variables tutorial, located at http://www.sophia.org/tutorials/independent-and-dependent-variables–3.

 

Note: Your professor will provide you with the equation and data necessary for you to complete this assignment. You will find this information attached to Assignment 1 within the course shell.

Write a four to six (4-6) page paper in which you:

  1. Compute the elasticities for each independent variable. Note: Write down all of your calculations.
  2. Determine the implications for each of the computed elasticities for the business in terms of short-term and long-term pricing strategies. Provide a rationale in which you cite your results.
  3. Recommend whether you believe that this firm should or should not cut its price to increase its market share. Provide support for your recommendation.
  4. Assume that all the factors affecting demand in this model remain the same, but that the price has changed. Further assume that the price changes are 100, 200, 300, 400, 500, 600 dollars.
    1. Plot the demand curve for the firm.
    2. Plot the corresponding supply curve on the same graph using the supply function Q = 5200 + 45P with the same prices.
    3. Determine the equilibrium price and quantity.
    4. Outline the significant factors that could cause changes in supply and demand for the product. Determine the primary manner in which both the short-term and the long-term changes in market conditions could impact the demand for, and the supply, of the product.
  5. Indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves.
  6. Use at least three (3) quality academic resources in this assignment. Note: Wikipedia does not qualify as an academic resource.

The specific course learning outcomes associated with this assignment are:

  • Analyze how production and cost functions in the short run and long run affect the strategy of individual firms.
  • Apply the concepts of supply and demand to determine the impact of changes in market conditions in the short run and long run, and the economic impact on a company’s operations.
  • Use technology and information resources to research issues in managerial economics and globalization.
  • Write clearly and concisely about managerial economics and globalization using proper writing mechanics.

Your supervisor has asked you to compute the elasticities for each independent variable. Assume the following values for the independent variables:

Q = Quantity demanded
P (in cents) = Price of the product = 8,000
PX (in cents) = Price of leading competitor’s product = 9,000
I (in dollars) = Per capita income of the standard metropolitan statistical area
(SMSA) in which the supermarkets are located = 5,000
A (in dollars) = Monthly advertising expenditures = 64

 

Sample Answer – Demand Estimation

Variable Elasticity

Elasticity = change in quantity / change in price. To calculate the elasticity for every variable, change in variable quantity divided by change of variable. This results to variable coefficients (Viton, 2012).

QD = -5200 -42P + 20PX + 5.2I + 0.20A + 0.25M

= -5200 – 42 * 500 + 20 * 600 + 5.2 * 5500 + 0.2 * 10000 + 0.25 * 5000

= -5200 – 21000 + 12000 + 28600 + 2000 + 1250

=17650

PED = variable initial value x variable coefficient

PEDP = -42 * 500/ 17650 = -21000/17650 = -1.19

PEDPX = 20 * 600/17650 = 12000/17650 = 0.68

PEDI = 5.2 * 5500/17650 = 28600/17650 = 1.62

PEDA = 0.2 * 10000/17650 = 2000/17650 = 0.11

PEDM = 0.25 * 5000/17650 = 1250/17650 = 0.07

Implication of the of Computed Elasticity

PEDP = -42 * 500/ 17650 = -21000/17650 = -1.19

The demand elasticity of price demonstrate a negative value of -1.19. This value is close to the unity elasticity which demonstrate equal change of demand to the change of prices. This means that change in the product prices for a certain percentage, influences the change of demand for almost similar percentage. This demonstrates that in the short-run, increase in the prices of frozen, product with low calorie will reduce the demand with a similar magnitude and similarly, decrease of their prices for a certain will increase their demand for a similar magnitude. However, the situation may change in the future as more people are giving extra importance to healthy feeding. This implies that increase in knowledge regarding healthy feeding may increase the products demand due to their important feature of low calorie. This may change the situation such that change in price will not receive similar magnitude in demand change. The demand may change slightly with change of prices or may not be affected at all in the future (Nitisha, 2015).

PEDPX = 20 * 600/17650 = 12000/17650 = 0.68

The value in this case is less than one which can be interpreted as relatively inelastic. This implies that change in the price of the competitor for a certain percentage result to change of the company’s product demand decrease but in a less magnitude. This implies that, competitor prices can influence the company’s product demand in the short-run. This may continue to happen in the long-run, unless the company employ measures to ensure that their products are highly competitive, particularly in health related matters to reduce the impact created by the cost of substitutable goods in the market.

PEDI = 5.2 * 5500/17650 = 28600/17650 = 1.62

The per capita income elasticity provide a value greater than one. This can be interpreted as relative elastic demand. This implies that a small change in prices create a huge change in the amount demand. Thus, change in the per capita income has a very great influence in the amount demanded. In the short-run, increase in the per capita income of individuals in the region will result to a huge increase in the amount demanded, while a decrease in per-capita will results to a huge decline in the amount demanded. The situation may remain constant in the future. Change of individual per capita may have the same influence in the demand even in the future, since people’s spending is always determined by their earnings (Nitisha, 2015).

PEDA = 0.2 * 10000/17650 = 2000/17650 = 0.11

Advertisement expenditure provides elastic value of less than one. This regarded as relatively inelastic demand, where by the level of demand created by advertisement is less than the amount invested in the same. This implies that, advertisement will not make great change to the company’s demand in the short-run and thus, the company will incur losses from advertisement investment. This will change in the future as more and more customers are aware of the company’s product and their health benefits. Thus, advertisement is anticipated to increase the level of products demand in the long-run, since less will be invested in advertisement as people become aware of the product.

PEDM = 0.25 * 5000/17650 = 1250/17650 = 0.07

Number of microwave sold affect the level of demand very slightly. The elasticity value tends to zero. This demonstrate inelastic situation where the level of oven sold hardly impact the demand of the company’s product. The situation is tending to almost inelastic s. In this regard, oven purchased may not impact the level of demand even in the future and hence, its significance to the company’s business in almost negligible (Nitisha, 2015).

Recommendation on Firm Prices

The analysis demonstrates an almost unitary elastic demand situation, where change of price causes an equal change on demand. This implies that decrease in the product prices by 10% will cause a demand increase by only 10%. This may not be very profitable to the company since the demand increase will only be enough to cover the losses incurred as a result of price decrease. Thus, the situation may remain the same forever. In this regard, the company should not consider reducing its prices to enhance the level of demand. This should only happen in the future, in case the analysis will demonstrate that a small change in prices will attract high increase in demand (Hofstrand, 2007).

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Supply or Demand Change Led By Move of  Equilibrium States Due To World Events

ECO 561 Assignment Instructions –  Market Equilibration Process Paper

Equilibration is the process of moving between two equilibrium points as a result of some change in supply or demand. Understanding how market equilibrium is sought following such a change is essential for business managers. It is important to understand how economic principles, and specifically supply, demand, and their determents are a part of your everyday business decisions.

Write a paper, create a video, or create a PowerPoint presentation using a real world experience in a free market (not government regulated) to describe a change that occurred in supply or demand as a result of world events that led to the need for a move between two equilibrium states. Explain the process of how that movement occurred using behaviors of consumers and suppliers. Graph the movement between the two points as well.

Required Elements:

  • Include academic research to support your ideas
  • Consider the Law of demand and the determinants of demand
  • Consider the Law of supply and the determinants of supply
  • Describe Efficient markets theory
  • Explain Surplus and shortage
  • Deliver the content in no more than a 700-word paper, OR 7- to 10-slide Microsoft PowerPoint presentation, OR 2- to 3-minute video (Please choose one of these choices, not all three),
  • Use University of Phoenix Material: Appendix A to create graphs illustrating the movement between the two equilibrium points and include this in the body of the assignment.
  • Your assignment is consistent with APA guidelines.

Gasoline Price Decrease Effect on Price elasticity of Demand For Commuter Rail

What effect on the price elasticity of demand for commuter rail is there likely to be from a decrease in the price of gasoline? Explain your answer.

A decrease in price of gasoline would mean a decrease in fare prices. Price elasticity of demand is the responsiveness of quantity demanded to a change in price. A reduction in price of gasoline will have a positive effect on the quantity of passengers due to reduced prices. Commuter rails are means of transport that are government sponsored and thus a cheap method of transport. It is mostly used by middle and low income earners because it is cheaper than using a personal car. However, it is also important to note that a decrease in price of gasoline may consequently result to reduced passengers commuting over the short distances because they will prefer to fuel their own cars and use them for commuting (Gwendolyn, 2011). Commuters that travel over long distances may not really adjust to changes in gas prices. It is equally important to appreciate the fact that changes in gas prices alone do not affect price elasticity of demand. Other factors such as parking fees, traffic, and congestion in these commuter rails have an impact on price elasticity of demand. But generally, a decrease in price of gasoline would consequently lead to reduced prices and this may either increase or reduce demand depending on the distance of travel.

Techniques For Creating Qualitative Forecasts For Demand

Write an essay discussing the following, be sure to cite your sources. Consider two different techniques for creating qualitative forecasts for the demand for a product: Sales force and Consumer survey. One has a ‘focus’ on the customers buying the product and one has a ‘focus’ on the people selling the product.

  1. Compare and contrast these two different views
  2. Discuss the advantages and disadvantages that they will have for the firm’s manager.
  3. Despite all the advances in statistics, computing power, and training for managers, many forecasts are still subject to substantial errors.
  4. What do you think is the biggest contributor to errors in forecast?
  5. What are three measures of forecast accuracy and which measure is the easiest to determine and which is the hardest?

ECO201 – Supply and Demand: Markets, Prices and Price Setting – Milk Market

ECO201 – Microeconomics – Supply and demand: Markets, Prices and price setting

 The Market for Milk:

Using the concepts from the background reading, please write a 4-5 page essay that addresses the following questions on the market for milk. (for this case, keep it simple, don’t worry about whether the milk is organic, 2%, whole, skim etc.)

  • Explain what happens to price and quantity of milk when the following events occur:
    • More people start eating cereal for breakfast.
    • There is a mad cow disease epidemic.
    • The price of milk increases.
    • The government decides to implement a price ceiling on milk.

For each event, you must specify how it effects either demand, quantity demanded, supply, or quantity demanded. It is also important to demonstrate how the change will affect the market demand or supply curve. Also, be sure to state any assumption you are making regarding the relationship of the event and milk. e.g. There is a sale on cookies. Assume that cookies are a complement to milk. If cookies are cheaper, then the consumer will increase quantity demanded of cookies. If consumers buy more cookies, then there will be a need for more milk to go with the cookies so the demand for milk will increase. This event causes a shift of the demand curve to the right. The shift will cause price and quantity of milk to increase.

  • Read section 1 and 2 of Chapter 5. What are some of the determinants of the price elasticity of demand?
  • What type of elasticity (elastic, inelastic, zero, etc.) do you think milk has based on your answer above. Explain.
  • Based on your answer above, what happens to total revenue when the price of milk is increased. Why?

Main Determinants of Elasticity of Demand

Nature of the commodity

The nature of a commodity determines elasticity of demand. Those products that are necessary in life are generally less elastic. The demand for comfort products have neither very elastic nor very inelastic because changes in prices results to relative changes in demand. Lastly, the demand for luxurious goods is very elastic. A change in price would have a great impact on demand.

Substitutes

The existence of substitutes increases elasticity of demand. When an individual is able to switch from one product to another, the demand of either product becomes elastic. For example, the demand for Coca Cola will be elastic because one can opt for Pepsi instead. However, if there are no good substitutes then demand tends to be inelastic.

Duration of price change

For those good that are non-durable, elasticity of demand is greater in the long run than in the short run. For such good, a consumer may be unable to find substitutes in the short run in the event of a price change, however, over the long run; a consumer can adjust and sought other substitutes. For example, consumers will continue to fuel their cars with gasoline when there is an increase in the prices of gasoline. However, this will happen in the short term.

Income of the consumer

Elasticity of demand is also determined by the income of the consumer. When a consumer has a high income, the elasticity of demand is reduced. This is because, in price will not significantly affect the quantity consumed by such a consumer. On the other hand when a consumer has a low income, elasticity of demand increase, that is, demand becomes more elastic. This is because changes in price will significantly affect demand and supply.

Definition of the market

Broadly defined markets tend to have a less elastic demand as compared to narrowly defined markets. For broadly defined markets, it is easier to find close substitutes to a product than small markets. For example, food is a broad category and because there is substitute for good food, it has inelastic demand. Ice cream on the other hand has is in a narrow category and thus more elastic because one is able to substitute other deserts for ice cream.

Supply and Demand of McDonald’s firm

Supply and Demand of your firm (McDonalds)

In this SLP assignment, we will examine the supply and demand of the good or service that your firm (McDonald’s) produces. Write a 2-3 page essay on the following issues:
  • Consider what your firm produces. What are some things that would change the demand for your product?
  • How quantity does demanded change?
  • What are some things that would affect changes in supply?
  • What if the government raised the minimum wage. How would this policy effect your firm?

Do some research on your own and explain the advantages and disadvantages to price controls (as in question 3). Be sure to cite your resources. In general, do you think the government should intervene in the market? Examples include minimum wage, rent control, etc.

SLP Assignment Expectations:

Use concepts from the modular background readings as well as any good quality resources you can find from the cyberlibrary or other internet search engines. Please be sure to cite all sources within the text and a reference list at the end of the paper.

  • Length: 2-3 pages double spaced and typed
  • The following items will be assessed in particular:
  • Your ability to explain the difference between changes in demand and quantity demand using an example of your choice.
  • Some in-text references to the modular background readings (APA formatting not required).
    The essay should address each element of the assignment. Remember to support your answers with solid references.

Literature Review – Impact of Seasonal Demand on Emirates Airline Tickets Purchase And Price

The airline industry is known worldwide for its dynamic nature in a volatile market that typically experiences numerous changes. Nonetheless, air transport has proven to be a flexible and reliable mode of transportation that also doubles up as a dependable option in as far as ferrying goods is concerned. It is for this reason that the airline industry has been growing exponentially over the past decade, favored by a collection of favorable factors. Some of the reasons why this sector has been developing at a record pace include the enactment of incentives aimed at reducing regulation coupled with a move by firms to create low-cost models. The airline industry presents unending opportunities to make profitable gains, which is why investors have recently flocked this market, investing millions of dollars into this nascent entrepreneurial venture. A large chunk of this money is spent on improving an airline’s fleet as it is often viewed as an effort geared towards increasing the firm’s profitability. Growing annual projections is a major objective of carriers, which can only be achieved by minimizing operational costs while capitalizing on the resources available at any given moment (Lantseva et al.). An important fact that needs to be acknowledged is the resilience of this cost-driven industry, no stranger to the seasonality of air ticket prices. Even though economic experts have failed to pay particular attention to this phenomenon, fluctuation of ticket prices remains at the heart of the airline industry, due to the fluidity causative factors. In particular, this event has been witnessed in the Middle East and the reason why Emirates Airline will serve as a case study to better understand the seasonality of tickets purchase and prices.

According to Kraft and Havlikova, the seasonal demand for tickets is often as a result of travel patterns of individuals all across the globe (70). Globalization, in particular, plays a significant role in this intricate web of factors that ultimately influence that the demand and purchase of tickets. It’s vital to acknowledge that the world is presently more connected than it has ever been. The expansion of travel channels and technological innovations has over the years simplified the process of traveling. Before these changes, traveling to far-flung areas was virtually unheard of, with those choosing to make such excursions often facing an arduous task. Air travel, for instance, revolutionized the travel process, primarily by cutting down significantly on significantly on travel time. Individuals from different walks of life made the most out of this development to travel to different localities across the globe in search of unending opportunities. Most immigrants are motivated by the promise of financial security, affordable housing, and advanced education programs. These individuals maintain correspondence with their kin back at home and would make a point to travel, even if it means doing so once a year. Leading airlines such as Emirates have invested heavily in mapping out the travel patterns of different groups of individuals across the globe. This seasonal demand for tickets is responsible for a boom in business for leading airlines that are a preferred choice for most passengers. Occasions such as the Holy month of Ramadan are held in high esteem by all Muslim faithful across the globe intent on making their pilgrimage to Mecca each year. Even though demand for tickets during such an occasion would be high, but still on demand, translating to profits for the companies involved.

Suppositions by Garrigos-Simon, et al. on the impact of seasonal demand on tickets paints a negative picture of the since airlines will undoubtedly be making huge profits at the expense of the traveler (351). During this particular period, carriers such as Emirates are well aware of the high number of potential clients traveling to specific locations around the world. Airlines are often well aware of the fact that a considerable number of individuals would be flying at these particular moments but still, choose to hike ticket prizes. At the end of it all, they end up on top in this elaborate game while the customers are forced to dig even deeper into their pockets to purchase tickets. There are numerous occasions where a family is unable to afford these trips and are sometimes forced to leave some members behind or forfeit it all together. As a result, families that would typically spend time together during momentous cultural or religious occasions are separated and fail to enjoy it as they would have if they were together. All this is as a result of these capitalistic tendencies that emphasized profitability above anything else. Moreover, fluctuation in the price of tickets has a ripple effect that has a far-reaching impact on travelers. Other industries take their cue from airline companies when tweaking their prices for the goods and services that they offer, making it even more expensive for tourists (Alves and Caetano 21). Accommodation, in particular, proves costly for tourists as hoteliers seek to keep up with the high demand for tickets by ensuring that they too hike prices. In this scenario, industries that have a direct connection to the airline industry capitalize on the seasonality of ticket demand, which often translates to additional costs that have to be serviced by travelers.

Lantseva, et al. opines that the overall impact of the seasonal demand for airline tickets eventually hinders tourism altogether (271). Airline economics is often wrought with apparent disparities in the cost of travel, especially if one is to compare high and low seasons. Demand for prices is usually high during particular periods, for instance during the start of winter when a tourist would typically prefer to vacation in countries that warmer climatic conditions such as the United Arab Emirates (UAE). One of the common excuses given by airlines for hiking their airline tickets is a response to a rise in global oil prices, which is often not the case. Leading fossil fuel companies that increase the cost of jet fuel only do so as a response to the seasonal demand for airline tickets and the price hike that follows (Kraft and Havlíková). In reality, these companies implement this policy to level the playing field and ensure that airlines such as Emirates do not end up reaping the lion’s share of the profits made. A reality that many have to contend with is that the income of many of these individuals remains static, even with an increase in the cost of living as a response to global gas prices. The resultant effect is that these individuals end up forfeiting their travel plans altogether due to its costly nature, ultimately lowering the number of individuals willing to travel.

Microeconomics vs. Macroeconomics And How The Relate To Concepts of Supply and Demand

Microeconomics refers to the study of both business and individual decisions regarding resources allocation as well as prices of goods and services offered while macroeconomics refers to the study of the behavior of the entire economy, not just certain businesses or individuals (Weintraub, 1979). Microeconomics looks into issues such as consumer behavior and specific labor markets while macroeconomics focuses on aggregate variables that affect the economy such as inflation and national productivity levels.

Demand and supply is what individuals look at since they focus on microeconomics. However, economists who are more interested in macroeconomics look into aggregate demand and supply(Weintraub, 1979). The total amount of goods and services produced compared to the total consumption of those goods and services dictate the price of a commodity. When the price of a product is high, producers tend to produce more of the same and vice versa.

Naturally, a demand curve gradientsdownward while a supply curve slants upwards. The two curves meet at the equilibrium price. In line with this, an increase in supply moves the supply curve line further away from 0, and a decrease in supply moves the line closer to 0. This concept also applies to the demand curve line. This represents the macroeconomics behind how money spent on microeconomics level by product buyers is established and controlled (Weintraub, 1979).

After hurricane Katrina, the price of fish went up because the supply of fish went down. The hurricane destroyed fishermen’s equipment as well as destroying fish natural habitats. This made fishing a challenge hence lowering supply. The situation is an example of a Microeconomic description of demand and supply. On a graph, the supply curve would move to the left while the demand curve would stay the same point resulting in a rise in equilibrium prices (Weintraub, 1979).

As inflation increases, the dollar is worth less. This is yet another example of Macroeconomics description of demand and supply. When inflation increases, taxes go up. The increase in taxes charged raises enough money to pay back the money that the government already owns(Weintraub, 1979). This can be seen as increased demand and supply.

Different situations affect demand and supply in different ways. There are situations where microeconomic situations can affect macroeconomic situations, and vice versa. The simplest way to remember this is by simply understanding that Micro is small, while Macro is big.

 

Effects on Demand and Supply and Equilibrium Price and Quantity of Spiral Bound Notebooks

Assume the market for spiral bound notebooks is in equilibrium. All students in public schools need notebooks of some type when they attend classes. For each of the following, explain the possible effects on demand and/or supply and equilibrium price and quantity of spiral bound notebooks using a correctly labeled supply and demand graph. Under your hand-drawn graph, list the determinant of supply and/or demand that causes each shift as well as the change in price and quantity. You should have 8 graphs. The written answer should be set up under the graph as follows:
Price: Increase/Decrease (select one)
Quantity: Increase/Decrease (select one)
Determinant: One of the determinants for demand (TRIBE) or supply (ROTTEN) that causes the shift.
  • The price of natural gas, a resource used by manufacturers throughout the United States, doubles.
  • The government provides a subsidy for notebook manufacturers.
  • The price of spiral bound notebooks increases and notebooks are an inferior good.
  • The price of binders and paper decreases.
  • A new binding machine is invented that binds in half the time.
  • The price of spiral bound notebooks is expected to double next month.
  • The government raises taxes on businesses at the same time that students receive their supply list for the new school year.
  • The price of pens and pencils falls dramatically.

Supply and Demand in a Global Market – Answered

Answer the following questions using examples and applications from the readings.  Justify your answers using economic concepts and ideas as they apply. Each response should be between 100-200 words.

Questions:

  1. The demand for labor is said to be a ‘derived’ demand.  What is the meaning of a derived demand? How does this concept help to determine the demand for labor?
  2. What are some of the factors that determine the supply of labor in a market? What significant factors have changed the supply of labor over the last twenty years?
  3.  How does a firm determine its prices and the quantity of labor required in the resource market during a specific period?
  4.  Why do income inequalities exist?  How are income inequalities measured? How have income inequalities changed from 1980 to the present?
  5. What is the role of the U.S. government, in terms of dealing with the problem of income inequalities?  What are the arguments, for and against, government involvement in this area?
  6. Why do nations trade?  What is meant by the concept of “Comparative Advantage”?  Could a nation be better off economically, if it practiced an isolation policy?
  7. The United States has had a significant trade imbalance for several years.  What are the problems associated with having a negative trade balance?  What can be done to correct the imbalance?
  8. How are exchange rates determined?  What is the significance of currency devaluations to the home country?  To other countries?

 

SAMPLE ANSWER

Economic Concepts

Derived demand can be defined as the demand that does occurs for a factor of production as a result of an existing demand for an intermediate goods or services. For instance, if college students decide to enroll in a given institution to be taught, it will be upto that institution to employ staff members who will then teach the students. Therefore such institution will increase their staff capacity as a result of the demand for education by the students. Derived labor cncept plays a significant role in the firms demand for labor. If for instance the firms output has a high demand, then the firm will employ more workers so as to boost their production capacity. On the flipside, if the demand for the firms’ products falls, the firm will demand very little labor, thereby dismissing off some workers (Cliff notes).

Labor supply can be defined as the number of hours that the workers are willing and able to supply within certain wage limits. One of the factors that affect labor supply in the market is the real wages. When the wages are high, the labor supply tends to be high. On the contrary, low wages reduces the labor supply (Steven, 1997). Additionally, the issue of net migration of labor does affect the labor supply within various industries of the economy. Finally, there is barrier to entry through placement of minimum entry requirements that bars non-qualified workers from making entry into certain professions (Riley, 2014).

There are certain significant factors that have affected the supply of labor over the past twenty years. One of them includes the supply of low skilled workers that is created as a result of attainment of low levels of education. Furthermore, the widening gap between the blacks and whites salary ranges has played a role in affecting labor supply.

For a firm to set the prices for its products, it first have to know the direct costs associated with making the product, plus the overhead costs involved in the process. Additionally, it has to know the non-manufacturing costs involved in the process. Finally, it has to set a realistic target of the profits it desires to make. On the other hand, the demand for labor will remain to be derived just as have been mentioned above. The amount of labor required will entirely depend on the demand for the products manufactured by the firm. The higher the demand for the products, the higher the demand for labor will be.

Income inequality is a measure of income distribution among households. The measure tends to create a comparison in income gaps between various households within a certain region or a certain country. Income inequalities exist due to the difference in skills of the workers, and as a result of the difference in education attainment of the workers. Income inequalities have changed over the years, with the current levels showing a high level of disparity. The current statistics shows that seven out of every twelve counties currently have a lower family median income as compared to what existed in the 1980s. The United States government can reduce inequalities through initiation of programs such as the introduction of social insurance so as to protect the citizens against risks of lowered incomes.

Countries trade with each other when the specific countries do not have the capacity to satisfy their own needs. When a country produces surplus goods, they trade with other countries in exchange of the goods they do not have, or that which they have a shortage. Economically, no sinhle country can be better off if it practiced isolation policy. Such a country will always run into deficits and therefore fail to improve on its economic prowess.

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Relationship Between Supply Chain and Supply and Demand Model

This paper discusses the relationship between supply chain and the supply and demand model. In the global marketplace of today, an integral aspect of supply chain connections has been the basis of competition for most firms as opposed to the traditional dependence on unique brand names as independent entities. In this regard, a firm’s overall success is influenced by the capacity of the managerial aspect to coordinate and integrate the complicated network of business associations among various members of the supply chain. According to Burrows and Cecere (2012), a supply chain management entails all activities that enable the products and services to reach the market and create satisfaction among customers. The supply and demand model, on the other hand, is the representation of the manner in which interaction occurs between suppliers and consumers in order to determine the price at which a certain quantity of a service or good should be sold in the market. The model is influenced by the behavior of sellers and buyers, and the manner in which the actions of sellers and buyers affect quantity and price of the product.

Supply chain begins with the supply of the raw materials to the manufacturer who then transforms them into consumable products and services. The management of supply chain is essential for every firm in order to make profits and maintain costs at low levels. The supply and demand model is significant for analysis of the competitiveness of a particular good or service in the market. It illustrates an increase in output by manufacturers due to the increasing prices. An increase in marginal costs usually influences market prices to rise and this motivates the need for an increased output. An increase in prices reduces the purchasing power of the consumers thereby influencing them to seek for cheaper products and services (Beggs, 2014). Whenever the quantity of the product needed is less than what is available, the situation influences manufacturers to reduce the product or service price due to the presence of the surplus. On the other hand, whenever, customers demand more than the available quantity in the market, the situation influences manufactures to increase product or service price due to the existence of shortage in the market. A balance between the manufactured quantity and the quantity needed creates an equilibrium situation.

Given that supply chain encompasses control of materials, processes and entities, it relates closely to the supply and demand model. It is significant to note that communication and planning have been essential functions for driving the traditional supply chain management. In this case, the planning function regards the future demand with reference to the past and present demand and makes sure that customer needs becomes the basis of demand. In this case, the customer is usually centrally placed in order to influence the operations of the supply chain (Burrows & Cecere, 2012). Therefore, the needs of the customers are the main drivers of the supply chain. The network that is driven by demand entails all things that a customer wants and, in this case, both the supply chain and the supply and demand model collaborate to satisfy customers, but, also, ensure that stakeholders and companies realize profits. Supply chain can be portrayed in various scenarios; for instance, the high technology or Microsoft supply chain where there is the exchange of response messages and purchase order requests. In this case, the seller acknowledges the purchase order initially placed by the shopper. The seller then sends a confirmation message to the buyer the moment shipment is initiated. In the case of the supply and demand model, there are, also, various scenarios; for instance, the release of Sony PlayStation 4 (Chopra & Meindl, 2012). There was an extremely high demand for it the moment it became available in the market. Certain individuals took advantage of the limited supply, and began selling it online at more than triple the buying price.

In conclusion, this paper discussed the relationship between supply chain and the supply and demand model. A firm’s overall success is influenced by the capacity of the managerial aspect to coordinate and integrate the complicated network of business associations among various members of the supply chain. The management of supply chain is essential for every firm in order to make profits and maintain costs at low levels. The supply and demand model is significant for analysis of the competitiveness of a particular good or service in the market. The network that is driven by demand entails all things that a customer wants and, in this case, both the supply chain and the supply and demand model collaborate to satisfy customers, but, also, ensure that stakeholders and companies realize profits.

How Supply of Money and Demand for Money Determine Rate of Interest

Money demand is determined by businesses and consumers need for money either in form of checking, cash and saving accounts, and they involve financial institutions to accomplish this purpose. Money supply on the other hand is determined by the federal reserves. Demand curve for money demonstrates how much cash will be held willingly at every interest rate.  Interest rate change moves individuals along the money curve of demand. Money demand change as a result of other factors apart from the interest rate results to the shift of the curve. Money supply curve is a line demonstrating the total money quantity in the economy at a given interest rate (Rittenberg & Tregarthen, 2015).

The money supply change results to a straightforward shift of the curve to the right when the money is increased and to the left if the money supply is decreased. Money demand on other hand is represented by a negative sloping curve. During low nominal interest rates people avoid saving due to low saving output. During this time individuals holds money in its liquid form, thus increasing the money demand in the money market. At high nominal rates, people prefer saving than holding money in liquid form, this reduces the demand of money in the market.  The money market reaches the equilibrium point when the amount of money demand is equal to the amount of money in the supply (Rittenberg & Tregarthen, 2015).

Estimating Demand Function

You have just started work for a small company, FitCo, that develops private fitness clubs in small towns. FitCo buys or leases a local hotel or motel, then renovates to provide a gym, swimming pool, sauna, Jacuzzi, and a small café where patrons can buy juices, smoothies, and other healthy snacks . FitCo only develops clubs in towns where it has no competitors. The main product is a one-month membership, which gives patrons unlimited use of the gym and other club facilities. So far FitCo has opened 24 such clubs in different towns.

Your new boss, Sarah, gives you a copy of an Excel spreadsheet containing data collected last year on FitCo’s 24 existing clubs. She asks you to use the data to complete the following important and time-sensitive tasks:

1. Estimate an empirical demand function for one-month memberships using the data gathered from the firm’s 24 clubs. (Assume the demand function is linear. Further assume that the only variables likely to significantly affect the demand for one-month memberships are price, average income, and the size of the town’s population.)

2. Interpret the estimated demand function for one-month memberships.

3. Calculate the point price elasticity of demand and point income elasticity of demand in Town D at the price charged last year.

4. For Town H and Town W determine whether the price charged last year was above, below or equal to the profit-maximizing price.

5. FitCo is considering opening a 25

thclub. The company must choose between one of two towns in which to locate the new club. Both towns have populations of 22,000. However, one of the towns has a relatively high average income of $60,000, while the other has a relatively low average income of $45,000. The annual fixed costs of running the club in the high income town would be about $160,000, while annual fixed costs of running the club in the low income town would be about $70,000. Your job is to select the site for the 25th club and to determine the appropriate price for the one-month memberships.

6. Write a short report summarizing the results of the analysis and any recommendations.

You have one week to complete the analysis, interpret the results, and summarize your findings and recommendations in a brief report. Sarah tells you that the main body of the report must be short (a 1000 words at most excluding the title page and any appendices), to the point, and not overly technical. She tells you that her formal knowledge of mathematics, economics, and statistics is somewhat limited, and asks you to keep that in mind as you write the main body of the report. Nevertheless, your conclusions and recommendations must be based on a rigorous analysis of the available data and you should provide a concise summary of any technical details

in an appendix. Sarah also tells you to be explicit about any important limitations your analysis might have. Finally, Sarah tells you that she likes her reports to be broken up into sections with sensible and self-explanatory headings because it makes them much easier to read and understand.

Sarah wishes you the best of luck and tells you to check with Peter, her personal assistant, about how to format the report. When you finally manage to track Peter down, he tells you to look at Section 0-8 of the MEQA Study Guide.

Data for FitCo Clubs in 2008
Price (P) Demand (Q) Income (M) Population (N) Revenue Fixed cost Profit
Town A $62 2875 $42,000 24000 $178,250 $101,000 $77,250
Town B $57 2908 $35,000 30000 $165,756 $64,000 $101,756
Town C $84 3472 $65,000 25000 $291,648 $137,000 $154,648
Town D $63 3263 $45,000 28000 $205,569 $107,000 $98,569
Town E $60 2823 $38,000 19000 $169,380 $77,000 $92,380
Town F $46 2502 $26,000 22000 $115,092 $61,000 $54,092
Town G $64 2977 $37,000 31000 $190,528 $68,000 $122,528
Town H $58 3309 $41,000 28000 $191,922 $78,000 $113,922
Town I $63 2596 $44,000 17000 $163,548 $70,000 $93,548
Town J $55 2517 $29,000 26000 $138,435 $52,000 $86,435
Town K $83 3542 $68,000 13000 $293,986 $166,000 $127,986
Town L $61 3132 $50,000 12000 $191,052 $113,000 $78,052
Town M $52 2467 $27,000 23000 $128,284 $32,000 $96,284
Town N $66 3881 $51,000 32000 $256,146 $89,000 $167,146
Town O $60 2882 $42,000 21000 $172,920 $66,000 $106,920
Town P $78 3629 $56,000 37000 $283,062 $125,000 $158,062
Town Q $46 2931 $32,000 15000 $134,826 $67,000 $67,826
Town R $55 2630 $28,000 28000 $144,650 $40,000 $104,650
Town S $55 3381 $41,000 18000 $185,955 $66,000 $119,955
Town T $30 4643 $41,000 23000 $139,290 $84,000 $55,290
Town U $41 4945 $56,000 26000 $202,745 $114,000 $88,745
Town V $28 4784 $37,000 32000 $133,952 $56,000 $77,952
Town W $22 3311 $24,000 24000 $72,842 $36,000 $36,842
Town X $43 4066 $42,000 18000 $174,838 $96,000 $78,838

Demand, Supply and Market Equilibrium – Discussion

1 Demand, Supply, and Market Equilibrium

Think about a product that you have purchased recently (e.g. soda, takeout meals, milk, shoes, manicure/pedicure, video game, etc.). Explain how the law of demand affected your purchase. Give specific examples of how the determinants of demand and supply affect this product

(T-I-P-E-N and P-R-E-S-T). What happens to the demand curve and the supply curve when any of these determinants change? Give examples of scenarios that would cause a change in demand versus a movement along the same demand curve and supply curve for this product. Discuss the new equilibrium price and quantity that result from these changes. Can you demonstrate some of these changes graphically?

 

  1. Price Elasticity of Demand

Think of another good that you have purchased recently (or you could continue with the good you selected in TDA 1). Be specific (e.g. is it breakfast cereal in general or Cheerios cereal specifically). If the price of this item increases, how would this affect the quality of the good that you consume? Is the Demand for this good price elastic or price inelastic? Justify your classification by talking about the determinants of elasticity as they apply to this product. Say price is on the rise for this product and your are the manager of a store, would you be thrilled to be selling this product? Under what circumstances would you want to own a business that sells this products? In other words, how does an increase in price for this good affect your Total Revenue? Using specific examples, relates the concepts of Cross Elasticity and income elasticity to this product.

 

Sample Answer

Demand, Supply, and Market Equilibrium

As the law of demand clearly states, as the price of a product decreases, its quantity demanded increases, and as its price increases, its quantity demanded decreases. This is true considering determinants of demand such as consumer preference, income, and expectation remain constant.

In Figure 1 above the quantity demanded and price are inversely related so that more of Cheerios cereal are bought as its price decreases and less of it bought as its price increase. Note here that price is an obstacle that discourages consumers from buying more of the Cheerios cereal product.

However, changes in the other demand determinants will either shift the demand curve to the right or to the left depending on the impact of determinant. For example if most consumers prefer Cheerios cereal, its demand will increase with decreasing price and therefore the curve will shift to the right.

Supply on the other hand shows the amount of product that a producer is willing to offer for sale at a given price during a specific period of time. Price and quantity supplied are directly related meaning producers will offer more of product for sale as its prices increases and less of it as its prices falls. This is explains the law of supply. The higher the price of Cheerios cereal, the greater its incentive and the greater the quantity supplied. Other determinants like expectations associated with price increase may stimulate suppliers to produce more of a product, causing current supply to increase. This will shift the supply curve to the right.

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