One of the critical elements covered in the material this week is to analyze information and data related to the demand and supply for your firm’s product(s) to support your recommendation for the firm’s actions. You will include a graphical representation of the data and information used in your analysis.
In a previous post I discussed the different aspects of demand that you could cover in your paper. You’ll want to think in terms of the factors mentioned that can impact demand for your firm (income, prices of related goods, tastes, population, demographics, and expected future prices) and make recommendations to the firm based on what you know from that research.
This post will focus on how to analyze supply in this post since we haven’t covered that in detail yet and provide some ideas of concepts related to supply that could be applied to your firm. You don’t need to discuss everything I cover in this post; this is just to provide some ideas to help you get started on your research! The supply curve represents the relationship between the price of a product and the quantity of the product supplied. You’ll want to use information and data (you should use the Supply and Demand Graph Help Excel sheet to gather the data) to discuss some of the variables that shift market supply, explain the direction the supply curve will shift and the resulting impact on equilibrium price and quantity, and use that analysis to recommend specific actions to your firm. Here is a quick explanation of variables that can shift market supply.
Price of Inputs
This is the factor which is most likely to cause a shift in the supply curve and the price of inputs should definitely be discussed in your paper. An input is anything used in the production of a good or service. If the price of an input for your product rises, the supply will decline (supply curve shifts to the left). This shows that your firm will supply a lower quantity at each price point than it previously could. On the other hand, if the price of an input declines, the supply will increase (supply curve shifts to the right).
Technological Change
This is a factor that describes a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs. A positive technological change means that the productivity of the firm’s workers or machines has increased; the firm is able to produce more output using the same amount of inputs. When a firm can produce more output with the same amount of inputs, its costs will be lower and the good will be more profitable to produce at any given point, which shifts the supply curve to the right. A negative technological change is rare, but it could result from a natural disaster or a war that reduces the ability of the firms to supply as much output with a given amount of inputs. In this case, the costs the firm experiences increases, the firm will earn lower profits from producing the good, and the supply curve will shift to the left.
Prices of Substitutes in Production
Alternative products that a firm could produce are called substitutes in production, which generally use similar components and can be assembled in the same factory. When the price of one product goes up relative to another, the firm can shift more production to the product that has become more profitable.
Number of Firms in the Market
Changes in the number of firms in the market will shift the supply curve. If a new firm has entered the market the supply curve will shift to the right, which lowers the equilibrium price and increases the quantity supplied. If an existing firm leaves the market the supply curve will shift to the left, which increases the equilibrium price and decreases the quantity supplied.
Expected Future Prices
If your firm expects that the price of its product will increase in the future, the best interest of your firm is to decrease supply now and increase it in the future when the price rises. If your firm expects that the price of its product will fall in the future, it should increase production now to take advantage of the higher price.
I hope this was helpful. There is a chart you may find useful on page 81 of your text summarizing the most important variables that cause market supply curves to shift. These are the shifts that you will be most likely to see for your firm. For information on what shifts demand you can look here, for help gathering the necessary data you can look here, and for a sample section of this paper you can look here.
Comments
Post a Comment