Help me study for my Economics class. I’m stuck and don’t understand.
I need three responses of at least 150 words each for the below students discussions for this week. Also in the bold below are the questions the students at answering.
Why is knowing (or estimating) the product demand so crucial for a firm?
Supply and demand are both keys to economic activity. The two influence each other and impact the prices of consumer goods and service within an economy. Supply is the amount of a particular good or service available at a given time to consumers. Demand is a measurement of consumer desire and consumer spending on a particular good or service at a specific price. As demand increases, available supply decreases and an increased supply may satisfy available demand at that price. Prices may fall as supply continues to grow. If supply decreases, prices may continue to grow (2019).
Companies study consumer behavior in an attempt to understand current and future demand. The capacity to produce enough supply to meet demand keeps prices low enough to entice consumers. Market economy have a theory that the relationship balance out over time in an equilibrium of prices, with supply and demand reaching a close approximation of the perfect allocation of resources to production. At this point, prices are perfectly set to interest consumers and companies produce neither too much nor too little. Product market economies use this to determine product development and production.
A good example of a business that suffered from poorly estimating the demand of its product was the HP Touch Pad. The HP Touch Pad was one of the shortest lived mobile products ever produced. The cancellation caught industry watchers by surprise and touched off a bizarre series of actions including dumping the entire company’s inventory for clearance bin prices. HP threw a big press conference in February, 2011 that generated a lot of excitement ( Kendrick, J. 2011). Thousands of press members made the trip to Francisco to cover the event. Everyone was waiting to see the new product. But HP had neither a shipping date or a price for the Touch Pad. The two omissions played a big part in the failure of the Touch Pad. If HP had launched the Touch Pad at the event making them available for purchase when the press conference was so high, the initial sales figure likely would have satisfied even HP. The press coverage put the product all over the news, and everyone was excited and looking forward to buying the Touch Pad but, it was not available for sale. HP was still working on the Touch Pad behind the scenes because it was not ready. The big mistake HP made was that they had promoted a product that was not ready for market. By the time they finished six months later, it was considered old new and consumers were not interested in the Touch Pad. HP ended us selling them for a fraction of the cost just to get rid of them.
(2019) Is Demand or Supply More Important to the Economy? Retrieved from https:// investopedia.com/ask-consumers
Kendrick, J. (2011) How HP Doomed the Touch Pad to Failure Retrieved from https://znet.com/article/how-hp-doomed
This week’s lesson on demand was fascinating and applied to all businesses. Understanding the demand curve for a product is crucial to maximizing revenue, without knowing the demand curve for a product can result in overproduction or underproduction, which both harm business. When a product is overproduced, it results in either A the product not being able to be sold at all or B the price being marked down to the point where demand is matched. Having stale inventory that cannot be sold runs the risk of becoming outdated and being replaced by a newer model. As a result, the value of the product is depreciated to the point were potential revenue is lost. When the price of a product is marked down to match the supply curve, marginal revenue is reduced, and as a result, the value of the product is lost.
One example of not knowing how to implement the demand curve properly is in the 2000s with automobile makers. Automobile makers kept production high to keep factories open even if there was no demand for the vehicles. “When automakers push vehicles to keep factories running, the unneeded or incorrectly configured vehicles don’t match “real” demand. That leads to discounting by retailers, incentives by manufacturers, and brand image erosion. Manufacturers’ payments actually reward retailers who ordered or accepted the wrong vehicles, further eroding the brand and reinforcing the “push” behavior.” From 2004 to 2007, GM and Ford lost billions of dollars with a booming automotive economy due to production being higher than demand. The automotive industry is a prime example of not following the demand curve and the results associated with it.
Wilson, A., & Wilson, A. (2010). No more push: How Detroit stopped overproducing. Automotive News, 84(6398), 0_1–044. Retrieved from http://search.proquest.com/docview/753634238/
The law of supply and demand is an extremely useful tool to comprehend optimal pricing and markets. It’s important to differentiate between the factors that result in shifts of the demand curve and movements along the demand curve. When it comes to tools for managerial decision making is the demand function. This tool aids in determining the magnitude of the demand for products. An accurate estimation of the demand for a service or a product is dependent upon the underlying variables that impact it, which is primarily price. An increase in price results in a lower quantity demanded. Therefore, a change in market price heavily affects movement along the demand curve. Assuming that no other factor influence demand change too. There are five factors that influence the demand curve: 1) consumers’ income, 2) substitute goods, 3) size (of the population), 4) complementary goods, and 5) consumer preferences. Then there is the price elasticity of demand, which measures how responsive consumers are to price fluctuations. This measure serves to provide how many percents the quantity demanded would decrease if the price increased by one percent. There are a plethora of means to try and predict future demand.
Qualitative analysis is typically used in demand analysis since it relies on personal insights of well-informed individuals. While it’s subjective it can offer the informed opinion of a group and avoids bias given by a single individual. The Delphi method is used to preclude an opinion that is forceful and not an accurate representation of the entire group. In the Delphi method, people answer a series of questions separately. Then, the responses are analyzed by an independent party who provides an anonymous summary of the forecasts with the reasons given by each expert. Experts are asked to take into account all of the individuals’ observations and revise their answers accordingly. As a result, range of forecasts decrease then results can be averaged to figure a forecast that is consensual. Another form of qualitative analysis is survey techniques. A well designed survey either in the form of questionnaires and interviews can provide managers valuable information.
Quantitative analysis is scientific research investigates relationships among variables. Changes in one variable depends on changes in another variable. Usually, the regression method quantifies these models. But, such processes demand data, which can be collected through published data, surveys and sampling, interviews, focus groups, etc. Firms are then able to construct a demand equation for their product.
A demand estimation gone wrong usually results in a flop such as when Starbucks attempted to create their own blender called the Starbucks Barista Bar Blender, which was rolled out in stores in 2003 and cost around $100. However, Starbucks could not demonstrate how the machine was any different from a regular brand name blender. Therefore, people did not buy the product and the line was discontinued. In essence, demand estimation is for forecasting prices and future sales. Therefore, if an estimate is not accurate it can be detrimental to the profit of a firm.
Peterson, H. (2013, November 11). The Worst Starbucks Product Flops Of All Time. Retrieved from https://www.businessinsider.com/failed-starbucks-p…
Samuelson W.F. & Marks S.G. (2015). Managerial Economics. Hoboken, NJ: Wiley & Sons Inc.