Economics - Principles in Action - Assignment Example

Essay Question       Essay Question Question Numerous factors may impact the demand for products by s. They include, size of market, complementary services and products, substitute products and services, customer preference, income of customers, competition, fashion, and prices (Elliot & Elliot 1997, p. 46). Size of Market The number of probable customers that may buy the custom printed t-shirts influence the size of the market. If the size of the market diminishes, the demand for custom printed t-shirts will decrease. This means the custom printed t-shirts will be more costly and there will less probable customers (Elliot & Elliot 1997, p. 46). Nonetheless, if the size of the market expands, the demand for custom printed t-shirts will increase, indicating an affordable price with a large number of probable customers. Complementary Services and Products Services and products that a business gives to the market may have an impact on the customers’ demand for the Services or products. For instance, a business may be selling hot dogs; in contrast, a corresponding business may be selling hot dog rolls. If the cost of the hot dog rolls augments, it may make the demand for hot dogs to diminish (Elliot & Elliot 1997, p. 46). Consequently, the demand curve moves to the left, and value for hot dogs would be forced to augment. Substitute Products and Services Customers may choose alternate services and products in place of what a person’s business provides. These alternative products and services function as opposition for a person’s business. For example, if a business sells coffee, the alternative for the product may be tea. If the cost of tea augments, a business may observe an increase in the number of customers who want to buy coffee. Consequently, the demand curve will move to the right, and costs for the business’ coffee may decrease. As indicated above, a substitute refers to a commodity that may be utilized in position of another commodity (Elliot & Elliot 1997, p. 47). To simplify the above example, if the cost of coffee increases then the consequence will be an increased demand for tea, and if the cost of tea increases then the result will be an increase in the demand of coffee. In contrast, compliments refer to commodities that may be utilized together, for example, sugar and tea. In case there is an increase in the cost of tea, the demand for tea diminishes, and consequently, the demand of sugar also decreases. Customer Preference Customers’ preference and tastes may vary depending on the details they get from family and friends, form of advertisements they come across, or the season. Varying preferences and tastes may have a tremendous impact on demand for various commodities. The degree at which a client needs a product may have an impact on the demand of the product. In addition, persuasive advertisements are developed to cause a variation in preference and tastes and thereby causes and increase in demand of a commodity. The more a customer prefers a commodity, the larger their demand for the commodity. In contrast, if the customer does not have a preference for a specified commodity, the customer will decrease the demand for the commodity (Sullivan & Sheffrin 2003, p. 79). For instance, a person suffering from diabetes will have minimal or no demand for commodities that contain sugar. Income of Customers The incomes and salaries of buyers highlight the commodities that they are able to buy. When the incomes and salaries of customers augment the customer’s demand for services and products also increases. If a customer takes another position that has a low salary or becomes unemployed the customer’s demand for commodities lessens. In contrast, when the salary and income of a customer increases, the customer’s capacity to buy goods and services escalates (Sullivan & Sheffrin 2003, p. 79). This causes an increase in demand. Competition Rivals are always attempting to occupy the larger part of the market, maybe by developing better or new commodities, or by reducing the prices of their commodities. This will increase the demand for products because customers will always purchase new, cheaper, or advanced products (Sullivan & Sheffrin 2003, p. 80). Fashion It is evident that fashionable products or service are more sought after than unfashionable products or service. When a commodity is in fashion, the demand is high. In contrast, when a commodity becomes unfashionable, its demand rapidly decreases (Rotemberg 1995, p. 189). Prices It is perceived as the most significant element that impacts demand. Products and services have varying sensitivity to price changes. If the cost of a commodity or service decreases the demand rises. This is because a larger amount of the commodity will be demanded at the minimal cost. For example, numerous cars will be bought if the prices are low (Rotemberg 1995, p. 201). Question 2 Capacity choices are usually closely associated to operations and strategies in an organization. When the owners or managers of firms make decisions on the basis of flexibility, location, inventory, and resource of a firm, they should take into consideration the effect on the firm. Capacity utilization shield a firm from uncertainty in a similar way as prolonged customer lead periods, inventory, and flexibility. If the system of a firm is correctly balanced and a variation is made in a different decision location, then the capacity utilization may require alteration to counterweigh (Lewis & Pendrill 2000, p. 23). There are a number of reasons why EverBright firm may be operating at only 50% capacity utilization. One, There may be new rivals causing over-supply of t-shirts in the market or taking market share. This means that if EverBright firm produces the 100 t-shirts per day, they may suffer tremendous loss. This is because the rivals of the firm either determine the price of the t-shirts in the market, which may be disadvantageous to EverBright firm, or EverBright firmmay not be able to compete with the rivals who over-supply their t-shirts in the market, hence, opting to produce only 50 t-shirts per day. Two, EverBright firm may be operating at only 50% capacity utilization since there may be a decrease in market demand because of variations in the fashions or tastes of customers. When the fashions or tastes of customers change, a company may be compelled to reduce or maintain its capacity utilization to fifty percent (Lianabel 2004, p. 81). Three, the firm may be in this situation because of ineffective marketing strategies. A single or a number of EverBright firm’s marketing techniques may show that the firm is not productive. The firm may be using marketing styles that do not effectively reach the customer hence there will be no need for full capacity utilization. Four, the firm may be running at only 50% capacity utilization due to seasonal demand. This may be specifically evident when the t-shirts may be in demand at a specified period within the year but are not bought at different periods of the year. The firm may not see the need to run at full capacity utilization because the t-shirts will only be in demand at a specified time within the year (Rotemberg 1995, p. 206). In addition, there are a number of problems that may result from running EverBright firm at only 50% capacity utilization. One, when the firm is running at 50% capacity utilization, or if its capacity utilization is low, then the fixed cost per unit of t-shirt produced will be at an extremely high level. An extremely high level of fixed cost per unit of t-shirt produced indicates a decreased level of profitability (Sullivan & Sheffrin 2003, p. 91). In addition, if prices are escalated to deal with these expenses, this will most likely lead to decreased sales of the t-shirt. For instance, the cost of making the fifty t-shirts will be high at 50% capacity. Since the firm is utilizing 50% capacity, it can also be presumed that EverBright firm is not utilizing the fixed assets adequately, thus the profit that the firm is making will be low as things may be going to waste. Two, additional capacity can illustrate a negative perception of EverBright firm. The firm may be presumed that is no longer busy. This may also indicate a decrease in popularity of the firm. This means that EverBright firm will not have numerous opportunities as it cannot enhance its capacity by adequate utilization of the available resources. In addition, the firm will not have a profit to further dedicate in additional endeavours in enhancing their work adequacy and also establish an improved work culture (Sullivan & Sheffrin 2003, p. 93). When the firm is not working in an adequate way, it cannot anticipate demands that may come up in the future and plan towards it or take new t-shirt orders. Third, if EverBright firm will continue running at 50% capacity utilization, the workers may become demoralized and bored if they do not engage in a number of activities. This is most certain if they fear the business will go down and they lose their employment positions. Despite the worker coming from the same family, they will not be happy working at that firm because they will presume they are not part of a thriving business. The brand name of EverBright firm will also not be reliable as it is not functioning at its complete capacity, which means the firm is not offering decent quality t-shirts. Finally, if capacity running is minimal, ultimate demand of the t-shirts will be minimal, and there will be no need to recruit anyone from outside the family (Lianabel 2004, p. 87). References Elliot, B & Elliot, J 2004, Financial accounting and reporting, Prentice Hall, New Jersey. Rotemberg, JJ 1995, Macroeconomics Annual, Massachusetts Institute of Technology Press, Massachusetts. Lewis, R & Pendrill, D 2000, Advanced financial accounting, Prentice Hall, New Jersey. Lianabel, O 2004, Designing strategic cost systems: How to unleash the power of cost information, John Wiley and Sons, New York.  Sullivan, A & Sheffrin, SM 2003, Economics: Principles in action, Prentice Hall, New Jersey. Read More