Business Environment - Assignment Example

?SECTION A The pricing and output decisions of any sort of business and the demand and quantity demanded of the entity being provided by the businessgo hand in hand. Both these sides of business equation are closely interlinked and interdependent on each other. From the household’s perspective, the quantity demanded is not only directly proportional to the income level of the households but also has a direct relation to the price of the entity, tastes and preferences, and also the price of other products required by the household. On the manufacturers side of equation the pricing and output decisions are determined by the quantity demanded. Hence, we can assume with much use of common sense that an increase in the price of Coca Cola would eventually lead to a decrease in its quantity demanded. The same fact can be illustrated by the use of the demand curve that has a downward slope (Figure 1) which signifies that greater the increase in the price of the entity, lower will be the quantity demanded. In other words price and quantity demanded are inversely proportional (Management Study Guide, 2008). The supply side of business also plays a major role in determining the output decisions. Supply decisions are primarily dependent on the profit potential. Building upon this factor we can verify that an increase in the market price of a product would lead to an increase in the supply of it in pursuit of a greater profit potential (Riley, 2006). This goes on to show that the supply of the products of a business is directly proportional to the price of the product (Case Karl E., 2009). The supply curve is hence upward sloping (Figure 1). There is however always a constraint in terms of the extent to which the business can expand its supply side as it either may be restricted by its scale of operations or the capacity or resources in the short run. Nevertheless, the business can expand its operations’ scale after having accumulated enough wealth in the long run (Harper, 2010). At anyone instant, the market can be subject to one of the following three conditions: Demand Excess (quantity demanded > quantity supplied at current price) Supply Excess (quantity supplied > quantity demanded at current price) Equilibrium (quantity demanded = quantity supplied at current market price) These three market conditions also play a major role in determining the output and pricing decisions of the business because if there an excess demand then there is a tendency for the price of the product to increase as the demanders would be in competition to gain the limited supplies. If however, the market conditions are on the excess supply side of equations then the prices are likely to decline. If there equilibrium in the market place then no price change would occur (Investopedia, 2011). Figure 1 SECTION B The basic forces of demand, supply and price fluctuations are the ones that govern the organizational responses in all sorts of businesses be it related to medicine, or farming, or production of shoes or computers. All the businesses play to their cards to these forces. The market is governed by the behaviour of both the producer and consumer sides of picture (Basic Economics, 2011). Having elaborated in section 1, we can now reasonably presume that a decrease in price is likely to increase the demand of the product. That is, if at the rate of making a call was 6$, a hypothetical person named Paul would call his mother in another town only once. But if the price if dropped to 3$ per call then Paul would be able to make double the amount of calls on the same price increasing the utility of it. On the other hand, one can take the example of a telecom company named Warid in Pakistan. Having noticed that the call rate at the night time was low and their profit margins were relatively less at that period of time, the company introduced a new ‘Glow’ package offering its customer base to make a call for 3 PKR per hour from 12AM to 7AM which would otherwise cost four times more without this offer (Warid, 2011). As a result of this, having decreased the price of calls for a specific time period, they not only increased their profit margins but also increased the demand for their connections hence also expanding their customer base. Another illustration of the supply side of the picture can be the example of a farmer that produces wheat on his piece of land. If the market pays him 1.50$ for the bushel of wheat then he is likely to stop the production of it because of the fact that it costs more to produce that bushel. Another reason for him stopping the production can be that it would be more beneficial for him to use that land to produce something more profitable. If however, the price is increased to 1.75$ for the bushel of wheat then there would be a chance that he might start producing the wheat again but on a smaller piece of land rather than the whole, utilizing the rest for the more profitable product. If the situation takes a turn as such that the price of wheat is increased to 2.50& per bushel then the farmer would see more profit in wheat sector and would shift back to it, hence increasing the supply of wheat again. SECTION C Giving gifts and presents has been an age old norm all across the globe regardless of religion, cast or creed. It is a medium of expression and is a line that is very close to the emotions of people. It is only recently that businessmen have started recognizing it as a true medium for great profit potential. Gift industry has been in the undercurrent of development with people testing and experimenting with its potential. It ranges from cards and wrapping sheets to dealing in proper gift packages for different occasions. A small company named Wrap n Roll can be considered here that started off with providing small gift wrapping services. In view of all the great recognition that they started getting for their work and after having recognized further potential in its line of work they started expanding (Sumreen, 2011). Operating in the Asian culture they first started catering to providing gift packages for the major occasions in the country like Birthdays, Weddings and local religious festivities. Eventually, the company was also approached to deal in corporate giveaways and now also works for making gift packages for various companies. The main reason for the success of this company was not just due to the fact that it provided quality but also because it was able to recognize potential in an industry that was relatively less developed in its region and also had great potential. This goes on to suggest the business and cultural environments have quite a major role to play in the responses and the success for all sorts of businesses. REFERENCES Basic Economics, 2011. Supply and Demand. [online]. Available at: http://www.basiceconomics.info/supply-and-demand.php. [Accessed 3 September 2011] Case Karl, 2009. Principles of Economics. 8th ed. India: Pearson Prentice Hall, Inc. Harper, D. 2010. Investopedia. Understanding supply side economics. [online]. Available at: http://www.investopedia.com/articles/05/011805.asp#axzz1WvvHfMBw. [Accessed 4 September 2011]. Investopedia, 2011. Economics Basics: Demand and Supply. [online]. Available at: http://www.investopedia.com/university/economics/economics3.asp#axzz1WvvHfMBw. [Accessed 3 September 2011]. Management Study Guide, 2008. Consumer Demand- Demand Curve, Demand Function & Law of Demand. [online] . Available at: http://www.managementstudyguide.com/consumer-demand.htm [Accessed 4 September 2011]. Riley, G, 2006. Tutor2u. Business Objectives. [online]. Available at: http://tutor2u.net/economics/revision-notes/a2-micro-business-objectives.html. [Accessed 3 September 2011]. Sumreen, 2011. Wrap n Roll. [online]. Available at: http://wrapnrollbysumreen.com/. [Accessed 4 September 2011]. Warid, 2011. GLOW. [online]. Available at: http://tutor2u.net/economics/revision-notes/a2-micro-business-objectives.html. [Accessed 3 September 2011]. Read More