Chanel Company - Chanel Bags - Essay Example

? Chanel Company – Chanel Bags Microeconomics Analysis a) Channel bags will be the product that will be used to help discuss both micro and macroeconomics elements. There various factors that affect the demand and supply of channel bags, in this case, leather bags will be the specification. The major factor affecting demand of these Channel bags is price. Every time there is change in the prices of these channel bags there is always a movement caused in the demand curve. For instance, if there happens to be a fall in the prices of the channel bags, the curve moves to the right implying that there is a rise in demand levels and if there is a rise in the prices of these products, there is a consequent fall in demand (Schotter, 2009). Therefore, the profit margin always increases with fall in the prices of these channel bags. Another crucial factor that affects the supply of these products is the income differences. In any case, there is an increase in the income levels of a population holding other factors constant, the sales for channel bags increase because the extra amount will be spent on purchasing them and an increase in profit margin is realized. Although when income spent decreases, the households will only concentrate on the most essential commodities lead to a fall in sales of channel bags, as it will be considered a luxurious need. The price at which other related goods are sold will affect demand in that if a bag like travelling bag with the same features is offered for a relatively low price compared to that of channel bags there will be a fall in demand for the channel bags, which results to low sales and profit. In case there is an increase in demand of the travelling, all customers will shift to channel bags hence rise in sales and profit margin. Advertisement also affects sales in such a way that whenever there is an effective awareness created on the channel bags there is a boost in sales and profits. The channel bags being in fashion is another factor that has boosted its sales. Many customers always prefer whatever product that is in fashion hence there is increased demand. The supply of channel bags can be affected by price changes. If an increase in the price of channel bags is factored in, the supply of this product will increase with an expectation of widenig the profit margin but if the prices fall the supply will be low. Low supply leads to a decrease in sales while an increase in supply leads to incresed sales. Lastly, change in technoloy employed matter a lot. Up to date technology makes production to be very effective and efficient hence increased supply that enjoys from economies of scale hence incresed profit margin. Demand curve The above graph shows that an increase in price of the bags leads to a fall in demand of the bags and decrease in price of the bags leads to an increase in demand of the bags. Other actors will lead to a shift of the curve. An increase in demand leads to a shift to the right while a decrease in demand leads to a shift to the left. Supply curve The above graph show how increase in the price of a commodity leads to an increase in the supply of the commodity. In case there is a fall in price of the bags, there will be a consequent fall in supply of the bag. . Other factors will lead to a shift of the curve. An increase in supply leads to a shift to the right while a decrease in supply leads to a shift to the left. b) Market structure The kind of market structure for channel bags is a perfect competition kind of market. This is simply because there are no barriers for new sellers into the market; there are many sellers and buyers. In this market, there are many other sellers. All these companies are allowed free entry into these markets where there are many buyers. c) The channel bags company should move from this kind of market structure because there is maximization of profits. The most ideal market structure is the monopoly kind of market where the firm can dictate its own profits and prices. The most suitable way to do this is to create an invention or innovation and patent the new idea. If this is done, optimization of profits is viable hence; the firm can stabilize out of enjoying the big profits for a long time. d) Elasticity concept Elasticity is the degree of responsiveness of product demanded with changes in income, prices of products that are related, and product prices. For channel bags as the products of study, increase in their prices leads to fall in demand (Schotter, 2009). This implies that the quantity demanded will be low, of which the degree of response will be low compared to when changes in prices causes an increase in the quantity demanded. In the perfect competitive market, the elasticity of price keeps changing and the only way is to either set standard prices or switch to a monopolist kind of market structure. The elasticity of income is also measured by studying the degree of responsiveness of quantity demanded with the changes in income. There is also the elasticity caused by changes in quantity demanded due changes in the prices of goods that are related. From all the elasticity, it is noted that where the elasticity is zero it means that there is no change in demanded quantity and it is a perfectly inelastic. If the elasticity is between zero and one, it means that the demanded quantity changes narrowly compared to price change. Where the price changes are almost the same as changes in demanded quantity the elasticity is always unitary. The demand is always elastic when changes in demanded quantity exceed those of prices. Perfectly elastic situation is achieved when the willing to buy channel bags at any price except for higher ones. Therefore, the situation that best suits the channel bags firm that is in a perfectly competitive market is the perfect elasticity. e) Utilization of resources The channel bags firm utilizes its resources efficiently because the firm is able to reach a state of equilibrium where quantity demanded is equal to the prices of the market, meaning that buyers and sellers are able to reach an agreement leaving both parties satisfied. If there is efficiency in a firm, there is perfect elasticity meaning that a big change in the quantity demanded results from a small change in price. Macroeconomic analysis a) Economic growth Economic growth is an increment in the quantity of services and products in an economy. For instance, the increase for bags represents growth of the economy. It is always measured in GDP when the economy is assumed to be at full employment (Jones, 2002). Fluctuations in the growth of economy lead instability of an economy that is brought by inconsistency in production. This leads to hiking of prices of goods hence inflation. Inflation in an economy will force the economy to take credits in order to maintain the GDP but this will just worsen the situation. Consequently, there will be low sales, which mean losses, or low profits are realized. b) Unemployment Unemployment in an economy is brought by insufficient resources to absorb labor. If the rate of unemployment in an economy increases, there will be increased poverty leaving most people to survive from hand to mouth (David & Ronald, 2007). This to a firm is a disadvantage as the individuals who are the purchasers have low income that cannot allow them purchase the products. Unemployment on the other hand compromises the laborers to the extent that they are paid less than appropriate. This creates inefficiency in production and pressure on the available resources. If there is pressure on the resources available, the production will be low and this leads to low supply with high prices that consequently yield low profit, which in turn compromises an economy’s growth. c) Inflation Inflation is the sharp rise in the prices of product. In case the prices of channel bags are hiked suddenly, there will be an acute fall in the demand for the product. Inflation will discourage investment and savings hence there will be low supply of the product in the market with the expectation of rises in prices in the future. Markets become inefficient and the firm may find it hard to budget in the short run. It may also force the firm to shift its resources from production with a focus on losses and profits from inflation. With inflation, purchase of the bags will be restricted those with real income (Jones, 2002). This inflation affects the GDP in that there will be some hidden tax on products produced hence the exports will be expensive which causes imbalance in trade. . Inflation in an economy will force the economy to take credits in order to maintain the GDP but this will just worsen the situation. Consequently, there will be low sales, which mean losses, or low profits are realized. d) Balance of payment These are the surpluses or deficit from the exchange of imports and exports. In the case of channel bags, if there is a deficit there will be pressure on the exports. It means that the imports exceed the exports. This will be of a negative effect because taxes will have to be imposed to make the exports balance with the imports. Imposition of taxation will trickle to the price of the bags. This makes phone prices to shoot up leading fall in the quantity demanded and decrease in the supply. The resources of the firm will be over utilized, which in turn will lead to production of poor quality products. e) Business cycle A business undergoes these cycles within a long period. These business cycles are as a result of credit cycles. This in turns leads to recessions, which may further lead to depressions. The cycle causes instability of the economy hence fall in GDP. The channel bags will be very expensive, this makes the profit maximization to be very difficult hence the economy, and the firm becomes inefficient (David & Ronald, 2007). Reference David, B. & Ronald, B., 2007. Microeconomics: Study Guide: An Integrated Approach. Frankel, M., 1962. The Production Function in Allocation and Growth: A Synthesis. American Economic Review, (52), p.995–1022. Jones, C.I., 2002. Introduction to Economic Growth. 2nd ed. New York: W.W. Norton and Co. Schotter, A., 2009. Microeconomics: A Modern Approach. International ed. Read More