pr 5 Using shifts in supply and demand curves, describe a change in the industry in which your firm operates. The change may arise from a change in c -

pr 5
Using shifts in supply and demand curves, describe a change in the industry in which your firm operates. The change may arise from a change in costs, entry/exit of firms, a change in consumer tastes, a change in the Macroeconomy, a change in interest rates, or a change in exchange rates. Label the axes, and state the geographic, product, and time dimensions of the demand and supply curves you are drawing. Explain what happened to industry price and quantity by making specific references to the demand and supply curves. If more than one change occurred, then decompose the change into smaller pieces so that your explanation has a step-by-step character to it. (Hint and warning: Demand and supply curves are used at the industry level, not at the firm level.) Describe how your company could profitably use the analysis.
The assignment is to answer the question provided above in essay form. This is to be in narrative form. Bullet points should not to be used. The paper should be at least 1.5 – 2 pages in length, Times New Roman 12-pt font, double-spaced, 1 inch margins and utilizing at least one outside scholarly or professional source related to organizational behavior. This does not mean blogs or websites. This source should be a published article in a scholarly journal. This source should provide substance and not just be mentioned briefly to fulfill this criteria. The textbook should also be utilized. Do not use quotes. Do not insert excess line spacing. APA formatting and citation should be used.

Understanding Markets and Industry Changes
8

Don't use plagiarized sources. Get Your Custom Assignment on

pr 5 Using shifts in supply and demand curves, describe a change in the industry in which your firm operates. The change may arise from a change in c

From as Little as $13/Page

2018 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part, except for use as permitted in a license distributed with a certain product or service or otherwise on a password-protected website for classroom use. Kamira/Shutterstock Images
CHAPTER

A market has a product, geographic, and time dimension. Define the market before using supplydemand analysis.
Market demand describes buyer behavior; market supply describes seller behavior in a competitive market.
If price changes, quantity demanded increases or decreases (represented by a movement along the demand curve).
If a factor other than price (like income) changes, we say that demand curve increases or decreases (a shift of demand curve).
Supply curves describe the behavior of sellers and tell you how much will be sold at a given price.
2

Market equilibrium is the price at which quantity supplied equals quantity demanded. If price is above the equilibrium price, there are too many sellers, forcing price down, and vice versa.
Prices are a primary way that market participants communicate with one another. High prices tell consumers to consume less, and suppliers to supply more, and vice-versa.
Making a market is costly, and competition between market makers forces the bidask spread down to the costs of making a market. If the costs of making a market are large, then the equilibrium price may be better viewed as a spread rather than a single price.
3
continued

Y2K and Generator Sales
From 1990-98, sales of portable generators grew 2% yearly.
In 1999, public anticipation of Y2K power outages increased demand for generators
AMP invested to increase capacity in anticipation of this demand growth they vertically integrated their company to increase capacity and reduce variable costs
Demand grew as expected Industry shipments increased by 87%. Prices also increased by an average of 21%
The following year a bust! Demand fell, and AMPs Y2K strategy to increase production led it to bankruptcy in 2000.
Lesson: AMP could have anticipated this.
4

Which Industry or Market?
Setting a single price for a single product of a single firm is referred to as a monopoly model of pricing
This chapter focuses on the market setting, showing how prices are determined in an industry where many sellers and many buyers come together (still a single price for a single product)
Caution: Do not use demand and supply analysis for an individual firm
Example: You would talk about changes to the smart phone industry, not the demand and supply of iPhones because there is only one seller of iPhones
The behavior of sellers is determined by a supply curve
The behavior of buyers is determined by a demand curve
5

Which Industry or Market? (cont.)
Before you begin analyzing an industry, you must consider what you want to learn from analysis
Usually this yields a particular market definition
Each market (or industry) has a time, product, and geographic dimension
For example: The yearly market for portable generators in the U.S.
Time: annual
Product: portable generators
Geography: US
When analyzing a problem, or investment opportunity, first define the time, product and geographic dimensions of the market in question
6

Shifts in the Demand Curve
Movement along the demand curve, i.e. a change in price leads to a change in the quantity demanded
Shifts in demand curve can occur for multiple reasons
Uncontrollable factor something that affects demand
that a company cannot control
Income, weather, interest rates, and prices of substitute and complementary products owned by other companies.
Controllable factor something that affects demand
that a company can control
Price, advertising, warranties, product quality, distribution speed, service quality, and prices of substitute or complementary products also owned by the company
7

Microsoft
In the late 1970s, Microsoft developed DOS, an operating system
to control IBM computers
The price for DOS depended on the price and availability of computers that could run it and the applications that ran under
it as well as the price of DOS itself
To increase demand for DOS Microsoft:
Licensed its operating system to other computer manufacturers so
that competition would reduce price of a crucial complement
Developed its own versions of complimentary software
Kept the price of DOS low, to increase share to encourage
complementary software development
Discussion: How did Microsoft control demand using these factors? How did competitors (Apple, for example) operate differently?
HINT: this was Steve Jobss biggest mistake
8

Demand Increase
At a given price, more quantity demanded = shift of the demand curve
9

Supply Curves
Definition: Supply curves describe the behavior of a group of sellers and tell you how much will be sold at a given price
Supply curves slope upward g the higher the price, the higher the quantity supplied
10

Market Equilibrium
Definition: Market equilibrium is the price at which quantity supplied equals quantity demanded
At the equilibrium price, there is no pressure for the price to change because the number of sellers equals the number of buyers (quantity demanded = quantity supplied)
11

Market Equilibrium (cont.)
Proposition: In a competitive equilibrium there are no unconsummated wealth-creating transactions
12
RIDDLE: How many economists does it take to change a light bulb?
ANSWER: None. The market will do it.

Using Supply and Demand
Supply and demand curves can be used to describe changes that occur at the industry level
Here, initial equilibrium is $8. After a demand shift, the new equilibrium is $10
13

Market Equilibrium Analysis

Using Supply and Demand (cont.)
Again: the mechanism driving price to the new equilibrium is competition
At the old price of $8, there is excess demand (9-5=4 more buyers than sellers), which puts upward pressure
on price until it settles at the new $10 equilibrium
14

Portable Generator Market Revisited
Return to the electric generator industry:
1997 Stable industry sales with intense competition
(2% avg. sales growth)
1997 Industry anticipates record demand will occur in 1999
1998 Massive capital expenses throughout industry on vertical integration projects
15

AB demand (anticipation) and supply (investment) increased

BC price dropped but quantity stayed above the 1998 level

Using Supply and Demand (cont.)
Example: model the Increase in quantity of mobile phones and the decline in the price over the past decade
Use a graph to explain two points
Shift of the supply curve thats it!
Shows the increase in supply (Q0Q1) and the decrease in price (P0P1)
16

Prices Convey Information
Prices are a primary way that market participants communicate with one another
Buyers signal their willingness to pay
Sellers signal their willingness to sell with prices
Price information especially important in financial markets
17

Prices Convey Information (cont.)
Example: Gas pipeline burst between Tucson and Phoenix
18

Prices Convey Information (cont.)
Tucson-Phoenix pipeline break reduced supply
to Phoenix which raised price in Phoenix.
High prices in Phoenix conveyed information to sellers so they diverted tanker trucks from Tucson to Phoenix.
There was a limit to how many tanker trucks could
fill up at the rack in Tuscon, so some Tuscon
tanker trucks were displaced by the tanker trucks going to Phoenix.
The results was a reduction of supply in Tucson, resulting in a price increase in Tuscon.
19

Market Making
A market maker makes a market by buying low and selling high.
A single (monopoly) market maker does not want to have too much or hold too much inventory g She has to pick prices that equalize quantity supplied and demanded.
20

Market Makers (cont.)
If the market maker bought and sold at the competitive price ($8), she would earn zero profit
To earn more, she must buy low and sell high and can do that with varying numbers of transactions
She should either buy at $6/sell at $10, or buy at $5/sell at $11 since both earn a profit of $12
Competition between market makers will force the bid-ask spread down to the cost of making a market
21

Optimal Spread in Market Making

Title?
Video enhancement products are state-of-the-art graphics systems that capture, analyze, enhance, and edit all major video formats without altering underlying footage
In 1998, this market consisted of a small number of companies, and demand was relatively light due to the extremely high price of the technology (prices ranged between $45,000 and $80,000)
In 2000, Intergraph entered the market at a price of $25,000, attempting to quickly capture a major share of the market. Intergraph produced a product at a substantially lower cost than the competition
22

Title continued?
What happened?
Entry caused an increase in supply and a strong downward pressure on price (average pricing fell to around $40,000)
A number of firms exited and prices rose back to around $45,000
Later, the events of 9/11/01 caused demand to spike
What happened?
In the short run, average prices shot up.
Higher prices eventually attracted more entrants, increasing supply. Pricing fell back down to an average level of around $30,000
23

Related Questions:

Related questions

Leave a Comment Cancel Reply