Major Micro- and Macroeconomics Issues - Report Example

Introduction

The Viking Range Corporation is an appliance company that manufactures kitchen appliances for both commercial and residential use. It had its headquarters in Greenwood, Mississippi and made its name by introducing the first professional grade range for home use which marked the origins for the professional segment of kitchen appliances. The company offers complete lines of devices that include ventilation, refrigeration; cooking and kitchen clean-up as well as outdoor appliances. In the recent past, the company has however been facing challenges in the marketing of its products, and this has led to the drop in businesses which led to the acquisition and laying off of its employees. However, the firm has come up with a new product that will not only boost the corporation but provide aid to its ailing business. The report below is to address the product and its basis on solid economic principles.

Product Description

The company is known the world over for the services it provides in the electronics market by delivering high-quality electronics to its customers. With the help of the company’s workforce, the engineers and designers came up with a new microwave oven model. The new model is known as Fire 5. The design of Fire 5 is based on the highest efficiency that the appliance can replicate. It cooks food relatively faster when compared to the various models. It will save both time and money and is easy enough to operate. One added advantage is that the slick design that model Fire 5 bears is appealing to the eye. The model was assembled from parts exclusively made in Viking Range Corporation.

Interaction of resources between households, business, and government

How model Fire 5 will address perceived needs

Given the current times, the market for model Fire 5 focuses on the needs of different consumers. The model can serve both light and heavy users. For those with high usages such as restaurants and hotels, the larger size of the model with a more extensive volume capacity will be made available. For light usage, the smaller size will be available. Apart from the usage, the model will counter for the age of all people. The model will cover the family range, the young single person, the newlyweds and the old to maximize on everyone. Demographically the target of the product will be those with a steady income and livelihood.

Present business climate and performance.

In launching model Fire 5 into the market, all the changing market conditions should be addressed to ensure that the product will sell in the market. All business at some point experience changes in the sales environment and Viking Range Corporation is no different. It is essential to be alert to all the possible variations and amend the plans and forecasts to compensate for them as those changes could affect only a specific industry or the entire economy such as an economic meltdown. The current interest rates and exchange will favor the launching of the model Fire 5 abroad and locally as they have an influence on the general trading market and show that it would be profitable to conduct the business with other countries.

Additionally, the economic situation at the moment is favorable as there are low interests on loans which imply that the financial situation is improving. The nature of the country’s economic system and the economic policies favor the manufacturing industry as the capital market, and its structures are arranged to suit them. The socio-economic infrastructure is suitable to launch the product, and business cycle anticipates the prospective market situations and this case the factors of production work to minimize the cost while maximizing the profits (Zhang et al 2014) The government has also played a significant role in ensuring that new products launched in the market are slightly favored and do not suffer complete annihilation. The political environment of the country at the moment is that it is stable and this is critical as the country’s image plays an important in defining the current business performance and climate. Government policy at the moment allows liberal exportation and importation, the inflow of foreign technology and capital that positively affect the operation of the business.

Scarcity

When a product is scarce, it will be in low supply which means that the demand for the product will be high. It will lead to the consumers to conduct a cost-benefit analysis upon which they will decide to purchase the product if they see a benefit from having the product than the cost associated with obtaining the product. The scarcity principle suggests that the price of a commodity should rise until there is equilibrium between the demand and supply chains. The model Fire 5 pricing will be placed at a moderate supply and correct pricing to prevent the mismatch between the demand and desired supply equilibrium and reduce the possibility of restricted exclusion of the product to the market.

Market mechanism

The operation of demand and supply will prove useful in determining the price setting of the Fire 5 model. Low prices will encourage the consumption of the goods by the customers, but this will be at the peril of the producer. Alternatively, setting the cost of the Fire 5 model at higher than at the normal will encourage production by the producers, but the consumption by the customers will turn out to be relatively low (Agrawal et al 2013) As such the pricing of the Fire 5 model should be placed relative to the current pricing in the market to balance the forces of production and consumption. As such the demand and supply mechanism when adequately integrated into the marketing of model Fire will provide the most efficient economic outcome and satisfy the society needs at minimal cost.

Price elasticity

There is need to understand the demand and price elasticity in the building of the pricing strategy of model Fire 5. To ensure that there is the success of the launch and progressive growth of this product it is crucial that pricing is recognized as part of the marketing of the product. Before setting the price for the Fire 5 model, it is relevant that the market and competition to the product are considered and whether the customers of the product value the differentiation in the product (Griffin et al 2016). Another factor to be found in price elasticity of Fire 5 model is the price sensitivity. It is particularly crucial when introducing new products. The price elasticity is essential as it can be used to predict the potential impact of the price of Fire 5 model and the revenues from the sales.

GDP and foreign exchange

Economic wealth is the best predictor of as whether a product will be successful once launched into the market. The current GDP of the unites states puts the Fire 5 model at higher chances of selling since it implies that the consumers will be able to afford the product. New products seller better in wealthier nations as compared to countries will see a lower GDP. A large number of essential characteristics in the state will be useful in the promotion of sales of Fire 5 model. The socioeconomic variables such as economic wealth and economic openness are great determiners whether the product will be successful (Lavoie et al 2014) When it comes to foreign exchange, the fluctuations of the currency can result in the volatility of the competitiveness in the country’s price. Regarding trade, the foreign currency plays a tremendous role in determining whether the value will appreciate or depreciate accordingly.

The impact of Microwave Fire 5 on Trade and Productivity

Using 4 years of firm-level data from Viking Range Corporation, the productivity profits during the launching of new products is critically analyzed. Employing propensity scoring, there’s the estimation of an average 20% increment in the productivity of the company during the same year the product is launched. After carrying heavy research and controls of the endogenous Corporations’ choice of launching, it is noted that new products attract more customers due to the upgrades made on the newly launched products. The best way of increasing the productivity of the company after the launching of the Fire 5 microwave model is to increase product flexibility in the body shop (Thimmapuram et al 2013) The Corporation is expected to accrue a 20% increment in its profits hence positively influencing the profits accrued by the company. My findings suggest that the Launching of the new Microwave Fire 5 model with appropriate platform experience will together recover $50 million annually in the lost productivity.

Impacts on Economic growth

The introduction of the Fire 5 model into the market by the Viking Corporation will be very beneficial to the economy of the country. This is because the launch will promote heavy competition against other Electronic firms such as LG, Samsung and Ram tons that produce also manufacture microwaves. Competition among these companies will extensively promote productivity hence economic growth. Increased productivity plays a major role in economic growth because; firms will have greater pressure of controlling costs whereby they will constantly strive to lower their costs of production so that they can prices that are competitive (Gali 2015) Economic growth will also come as a result of other companies encouraging innovation so as to be able to attain the technological level of the Dire 5 model; other competing companies will also face the pressure of improving their infrastructure- competition will exert pressure on local communities to keep producers competitive by improving communications, roads, airports, docks as well as improving educational standards(Gali 2015). The launch will also come in hand with employment opportunities for marketers and distributors of the Fire 5 model which will increase the levels of income in the population hence improving the economic state of the nation.

Unemployment

The success of the fire 5 model might be greatly affected the unemployment levels in the country because as the rate of unemployment declines significantly, lesser individuals are able to afford certain commodities, and because these individuals have less discretionary income to spend, the market for newly launched goods and services starts to significantly decline. If there’s high rate of unemployment in the country, there will be a lesser activity carried out in the resource market (Marcu 2014) This comes about due to the fact that fewer individuals will be selling their labor to organizations and firms that participate in the production of goods and services. High employment rates promote less money in the economy since fewer people are earning incomes. Incase this happens, the households are able to afford fewer goods and services hence the expected sales of the new Fire 5 microwave model may be greatly affected. High employment rates on the other hand will mean that there’s a significant amount of money circulating in the economy hence more people will be able to easily afford luxury products hence accruing higher sales of the Fire 5 model.

Inflation

In the field of economics, Inflation is an increase in the prices of goods and services in an economy over a specified period. High and unpredictable inflation levels are detrimental overall to any economy. In case of high rates of inflation at the time when the Fire 5 model is being launched, Inflation might add market inefficiencies, and makes it tedious for Vikings Corporation to plan long-term or even budget. Inflation will also cause a drag on productivity of the Vikings corp. because it will be forced to shift its resources away from products to focus on profit and losses from currency inflation hence dropping the sales of the New Fire 5 model. Inflation will also cause uncertainty about the future purchasing power of money hence discouraging saving and investment (Mc Combie et al 2016) The Fire 5 model might suffer great loss because high inflation rates causes the redistribution of purchasing power from those on fixed incomes towards those with variable incomes. The exportation of Fire 5 may also be affected by inflation because the redistribution of purchasing power will also occur between international trading partners.

Business Cycle

The business cycle is the period irregular movement in economic measure by fluctuations in macroeconomic variables and real GDP. The business cycle constitutes of the following factors; import and export fluctuations, Monetary policies, technological innovations, inconstant government expenditure. The Fire 5 model market performance may be affected by import and export fluctuations because growth in the incomes of foreign countries leads to an increase in the demand of imported goods by that country’s residents and vice versa. Monetary policies such as the fiscal policy is the best way used in boosting aggregate demand leading to increased sales (Azevedo et al 2016)Fire 5 market performances may also be influenced by the fluctuations in government expenditure because government expenditure leads to economic expansions which will in turn accrue greater sales level for the Fire 5 new microwave but little government expenditure may lead to poor market performance of the Fire 5 model because of economic decline.

Classical and Keynesian Economics

Keynesian economics is an economic theory of total spending in the economy and greatly influences inflation and output of a business. In the classical economic theory, if the Fire 5 aggregate demand falls, the resulting production and job weaknesses would result in decline in the price of the Fire 5 microwave hence lesser profits accrued. According to the ‘depression economics” the market performance of the Fire 5 microwave model may be affected in case there are high unemployment rates and low market output because the population will have lesser spending capacity on luxury goods such as the Fire 5 microwave. The Keynesian multiplier effect may also affect the Fire 5 model because it indicates that an injection in government spending leads to increased spending and even greater business activity (Keynes et al 2016) This theory proposes that spending boosts generates more revenue and increases aggregate spending. If the Vikings Corp. is willing to spend more on its products i.e. Fire 5 microwaves this will result in a Gross Domestic Product growth hence greater profits and better market performance.

Aggregate supply

The aggregate supply may greatly affect the Fire 5 microwave because technology could completely eradicate the demand for this product. In case it is rendered obsolete because technology has produced a preferable substitute that performs the same function, the sales might be very low. (Keynes et al 2016) The supply should be equal to supply since too much supply may lead to market disequilibrium hence lesser profits than expected. On the other hand, an extremely low supply may lead to customer dissatisfaction because many customers in need of the Fire 5 microwave may not be able to access it in the market. Therefore, it is best to supply the Fire 5 microwave in moderate quantities to avoid the problem of disequilibrium in the market.

Conclusion

Basing on the research, for the successful launch and subsequent growth of the Fire 5 model it is imperative that all factors of the economic principles are catered for in the planning of the product. The current market plays an important part in deciding the outcome of the product and such it should considered. The Fire 5 model market performance may be affected by import and export fluctuations because growth in the incomes of foreign countries leads to an increase in the demand of imported goods by that country’s residents and vice versa. . If the Vikings Corp. is willing to spend more on its products i.e. Fire 5 microwaves this will result in a Gross Domestic Product growth hence greater profits and better market performance.