Dealing with Employees/management

Advertisement


Question
Hi leo, I hope u r fine.. I was waiting for u since long time. . Nice to see u available.. plz reply to my ques as soon as possible. .

1. “Cost function expresses the relationship between the cost and its determinants.” Discuss this statement giving examples from any firm of your choice.
 
4.   “A characteristic of oligopolistic market is that, once the general price level is established it tends to remain fixed for an extended period of time.” Discuss the economic rationale underlying this phenomenon.      
3.In any firm of your choice, try to find the effect of change in demand and change in supply on price and quantity of product.
4.Take a case of a recent merger and explain the reasons which led to the merger.

Q1.   What is the role of strategists in Corporate Management? Discuss with the help of some real life examples.
Q2.   Collect the material related to Starbucks. Analyze its strategies for global markets.
Q3.   Discuss the recent development with respect to the code and laws of Corporate Governance in markets other than India.
Q4.   Enlist the steps involved in developing R&D strategy and explain each one of them with the help of examples.
Q5.   ‘The new Companies Act 2013 urges the organizations to actively take up social causes, by making corporate social responsibility (CSR) statutory’. Elucidate the statement and its implications on the business integrated view of CSR.

Answer
HERE  IS  SOME  SOME  USEFUL MATERIAL.
SOME  ANSWERS  HELD  BACK  DUE TO  SPACE CONSTRAINT.
PLEASE  FORWARD  THESE  BALANCE  QUESTIONS  TO  MY  EMAIL  ID   
leolingham@gmail.com.
I  will send  the balance  asap.
Regards
LEO  LINGHAM   
==========================================











4.   “A characteristic of oligopolistic market is that, once the general price level is established it tends to remain fixed for an extended period of time.” Discuss the economic rationale underlying this phenomenon.      

1. Market Structure
2. Market Structure Market structure – identifies how a market is made up in terms of: The number of firms in the industry The nature of the product produced The degree of monopoly power each firm has The degree to which the firm can influence price Profit levels Firms’ behaviour – pricing strategies, non-price competition, output levels The extent of barriers to entry The impact on efficiency
3. Market Structure More competitive (fewer imperfections) Perfect Competition Pure Monopoly
4. Market Structure Less competitive (greater degree of imperfection) Perfect Competition Pure Monopoly
5. Market Structure Perfect Competition Pure Monopoly Monopolistic Competition Oligopoly Duopoly Monopoly The further right on the scale, the greater the degree of monopoly power exercised by the firm.
6. Market Structure Importance: Degree of competition affects the consumer – will it benefit the consumer or not? Impacts on the performance and behaviour of the company/companies involved
7. Market Structure Models – a word of warning! Market structure deals with a number of economic ‘models’ These models are a representation of reality to help us to understand what may be happening in real life There are extremes to the model that are unlikely to occur in reality They still have value as they enable us to draw comparisons and contrasts with what is observed in reality Models help therefore in analysing and evaluating – they offer a benchmark
8. Market Structure Characteristics of each model: Number and size of firms that make up the industry Control over price or output Freedom of entry and exit from the industry Nature of the product – degree of homogeneity (similarity) of the products in the industry (extent to which products can be regarded as substitutes for each other) Diagrammatic representation – the shape of th e demand curve, etc.
9. Market Structure Characteristics: Look at these everyday products – what type of market structure are the producers of these products operating in? Remember to think about the nature of the product, entry and exit, behaviour of the firms, number and size of the firms in the industry. You might even have to ask what the industry is?? Canon SLR Camera Bananas Mercedes CLK Coupe Vodka Electric Guitar – Jazz Body
10. Perfect Competition One extreme of the market structure spectrum Characteristics: Large number of firms Products are homogenous (identical) – consumer has no reason to express a preference for any firm Freedom of entry and exit into and out of the industry Firms are price takers – have no control over the price they charge for their product Each producer supplies a very small proportion of total industry output Consumers and producers have perfect knowledge about the market
11. Perfect Competition Diagrammatic representation Cost/Revenue Output/Sales The industry price is determined by the demand and supply of the industry as a whole. The firm is a very small supplier within the industry and has no control over price. They will sell each extra unit for the same price. Price therefore = MR and AR P = MR = AR MC The MC is the cost of producing additional (marginal) units of output. It falls at first (due to the law of diminishing returns) then rises as output rises. AC The average cost curve is the standard ‘U’ – shaped curve. MC cuts the AC curve at its lowest point because of the mathematical relationship between marginal and average values. Q1 Given the assumption of profit maximisation, the firm produces at an output where MC = MR (Q1). This output level is a fraction of the total industry supply. At this output the firm is making normal profit. This is a long run equilibrium position.
•   12. Perfect Competition Diagrammatic representation Cost/Revenue Output/Sales P = MR = AR MC AC Q1 Now assume a firm makes some form of modification to its product or gains some form of cost advantage (say a new production method). What would happen? AC1 MC1 AC1 Abnormal profit Q2 Because the model assumes perfect knowledge, the firm gains the advantage for only a short time before others copy the idea or are attracted to the industry by the existence of abnormal profit. If new firms enter the industry, supply will increase, price will fall and the firm will be left making normal profit once again. P1 = MR1 = AR1 The lower AC and MC would imply that the firm is now earning abnormal profit (AR>AC) represented by the grey area. Average and Marginal costs could be expected to be lower but price, in the short run, remains the same.
•   13. Monopolistic or Imperfect Competition Where the conditions of perfect competition do not hold, ‘imperfect competition’ will exist Varying degrees of imperfection give rise to varying market structures Monopolistic competition is one of these – not to be confused with monopoly!
•   14. Monopolistic or Imperfect Competition Characteristics: Large number of firms in the industry May have some element of control over price due to the fact that they are able to differentiate their product in some way from their rivals – products are therefore close, but not perfect, substitutes Entry and exit from the industry is relatively easy – few barriers to entry and exit Consumer and producer knowledge imperfect
•   15. Monopolistic or Imperfect Competition Implications for the diagram: Cost/Revenue Output / Sales MC AC Marginal Cost and Average Cost will be the same shape. However, because the products are differentiated in some way, the firm will only be able to sell extra output by lowering price. D (AR) The demand curve facing the firm will be downward sloping and represents the AR earned from sales. MR Since the additional revenue received from each unit sold falls, the MR curve lies under the AR curve. We assume that the firm produces where MR = MC (profit maximising output). At this output level, AR>AC and the firm makes abnormal profit (the grey shaded area). Q1 £1.00 £0.60 Abnormal Profit If the firm produces Q1 and sells each unit for £1.00 on average with the cost (on average) for each unit being 60p, the firm will make 40p x Q1 in abnormal profit. This is a short run equilibrium position for a firm in a monopolistic market structure.
•   16. Monopolistic or Imperfect Competition Implications for the diagram: Cost/Revenue Output / Sales MC AC D (AR) MR Q1 Because there is relative freedom of entry and exit into the market, new firms will enter encouraged by the existence of abnormal profits. New entrants will increase supply causing price to fall. As price falls, the AR and MR curves shift inwards as revenue from each sale is now less. AR1 MR1
•   17. Monopolistic or Imperfect Competition Implications for the diagram: Cost/Revenue Output / Sales MC AC D (AR) MR Q1 AR1 MR1 Notice that the existence of more substitutes makes the new AR (D) curve more price elastic. The firm reduces output to a point where MC = MR (Q2). At this output AR = AC and the firm will make normal profit. Q2 AR = AC
•   18. Monopolistic or Imperfect Competition Implications for the diagram: Cost/Revenue Output / Sales MC AC AR1 MR1 This is the long run equilibrium position of a firm in monopolistic competition. Q2 AR = AC
•   19. Monopolistic or Imperfect Competition Some important points about monopolistic competition: May reflect a wide range of markets Not just one point on a scale – reflects many degrees of ‘imperfection’ Examples?
•   20. Monopolistic or Imperfect Competition Restaurants Plumbers/electricians/local builders Solicitors Private schools Plant hire firms Insurance brokers Health clubs Hairdressers Funeral directors Estate agents Damp proofing control firms
•   21. Monopolistic or Imperfect Competition In each case there are many firms in the industry Each can try to differentiate its product in some way Entry and exit to the industry is relatively free Consumers and producers do not have perfect knowledge of the market – the market may indeed be relatively localised. Can you imagine trying to search out the details, prices, reliability, quality of service, etc for every plumber in the UK in the event of an emergency??
•   22. Oligopoly Competition between the few May be a large number of firms in the industry but the industry is dominated by a small number of very large producers Concentration Ratio – the proportion of total market sales (share) held by the top 3,4,5, etc firms: A 4 firm concentration ratio of 75% means the top 4 firms account for 75% of all the sales in the industry
•   23. Oligopoly Example: Music sales – The music industry has a 5-firm concentration ratio of 75%. Independents make up 25% of the market but there could be many thousands of firms that make up this ‘independents’ group. An oligopolistic market structure therefore may have many firms in the industry but it is dominated by a few large sellers.
•   24. Oligopoly Features of an oligopolistic market structure: Price may be relatively stable across the industry – kinked demand curve? Potential for collusion Behaviour of firms affected by what they believe their rivals might do – interdependence of firms Goods could be homogenous or highly differentiated Branding and brand loyalty may be a potent source of competitive advantage Non-price competition may be prevalent Game theory can be used to explain some behaviour AC curve may be saucer shaped – minimum efficient scale could occur over large range of output High barriers to entry
•   25. Oligopoly The kinked demand curve - an explanation for price stability? Price Quantity D = elastic D = Inelastic £5 100 Kinked D Curve The principle of the kinked demand curve rests on the principle that: If a firm raises its price, its rivals will not follow suit If a firm lowers its price, its rivals will all do the same Assume the firm is charging a price of £5 and producing an output of 100. If it chose to raise price above £5, its rivals would not follow suit and the firm effectively faces an elastic demand curve for its product (consumers would buy from the cheaper rivals). The % change in demand would be greater than the % change in price and TR would fall. Total Revenue A Total Revenue B If the firm seeks to lower its price to gain a competitive advantage, its rivals will follow suit. Any gains it makes will quickly be lost and the % change in demand will be smaller than the % reduction in price – total revenue would again fall as the firm now faces a relatively inelastic demand curve. Total Revenue B Total Revenue A The firm therefore, effectively faces a ‘kinked demand curve’ forcing it to maintain a stable or rigid pricing structure. Oligopolistic firms may overcome this by engaging in non-price competition.
•   26. Duopoly Market structure where the industry is dominated by two large producers Collusion may be a possible feature Price leadership by the larger of the two firms may exist – the smaller firm follows the price lead of the larger one Highly interdependent High barriers to entry Cournot Model – French economist – analysed duopoly – suggested long run equilibrium would see equal market share and normal profit made In reality, local duopolies may exist
•   27. Monopoly Pure monopoly – where only one producer exists in the industry In reality, rarely exists – always some form of substitute available! Monopoly exists, therefore, where one firm dominates the market Firms may be investigated for examples of monopoly power when market share exceeds 25% Use term ‘monopoly power’ with care!
•   28. Monopoly Monopoly power – refers to cases where firms influence the market in some way through their behaviour – determined by the degree of concentration in the industry Influencing prices Influencing output Erecting barriers to entry Pricing strategies to prevent or stifle competition May not pursue profit maximisation – encourages unwanted entrants to the market Sometimes seen as a case of market failure
•   29. Monopoly Origins of monopoly: Through growth of the firm Through amalgamation, merger or takeover Through acquiring patent or license Through legal means – Royal charter, nationalisation, wholly owned plc
•   30. Monopoly Summary of characteristics of firms exercising monopoly power: Price – could be deemed too high, may be set to destroy competition (destroyer or predatory pricing), price discrimination possible. Efficiency – could be inefficient due to lack of competition (X- inefficiency) or… could be higher due to availability of high profits
•   31. Monopoly Innovation - could be high because of the promise of high profits, Possibly encourages high investment in research and development (R&D) Collusion – possible to maintain monopoly power of key firms in industry High levels of branding, advertising and non-price competition
•   32. Monopoly Problems with models – a reminder: Often difficult to distinguish between a monopoly and an oligopoly – both may exhibit behaviour that reflects monopoly power Monopolies and oligopolies do not necessarily aim for traditional assumption of profit maximisation Degree of contestability of the market may influence behaviour Monopolies not always ‘bad’ – may be desirable in some cases but may need strong regulation Monopolies do not have to be big – could exist locally
•   33. Monopoly Costs / Revenue Output / Sales AC MC AR MR AR (D) curve for a monopolist likely to be relatively price inelastic. Output assumed to be at profit maximising output (note caution here – not all monopolists may aim for profit maximisation!) Q1 £7.00 £3.00 Monopoly Profit Given the barriers to entry, the monopolist will be able to exploit abnormal profits in the long run as entry to the market is restricted. This is both the short run and long run equilibrium position for a monopoly
•   34. Monopoly Costs / Revenue Output / Sales AC MC AR MR Welfare implications of monopolies A look back at the diagram for perfect competition will reveal that in equilibrium, price will be equal to the MC of production. We can look therefore at a comparison of the differences between price and output in a competitive situation compared to a monopoly. Q1 £3 The price in a competitive market would be £3 with output levels at Q1. Q2 £7 The monopoly price would be £7 per unit with output levels lower at Q2. On the face of it, consumers face higher prices and less choice in monopoly conditions compared to more competitive environments. Loss of consumer surplus The higher price and lower output means that consumer surplus is reduced, indicated by the grey shaded area.
•   35. Monopoly Costs / Revenue Output / Sales AC MC AR MR Welfare implications of monopolies Q1 £3 Q2 £7 The monopolist will be affected by a loss of producer surplus shown by the grey triangle but…….. The monopolist will benefit from additional producer surplus equal to the grey shaded rectangle. Gain in producer surplus
•   36. Monopoly Costs / Revenue Output / Sales AC MC AR MR Welfare implications of monopolies Q1 £3 Q2 £7 The value of the grey shaded triangle represents the total welfare loss to society – sometimes referred to as the ‘deadweight welfare loss’.
•   37. Contestable Markets Theory developed by William J. Baumol, John Panzar and Robert Willig (1982) Helped to fill important gaps in market structure theory Perfectly contestable market – the pure form – not common in reality but a benchmark to explain firms’ behaviours
•   38. Contestable Markets Key characteristics: Firms’ behaviour influenced by the threat of new entrants to the industry No barriers to entry or exit No sunk costs Firms may deliberately limit profits made to discourage new entrants – entry limit pricing Firms may attempt to erect artificial barriers to entry – e.g…
•   39. Contestable Markets Over capacity – provides the opportunity to flood the market and drive down price in the event of a threat of entry Aggressive marketing and branding strategies to ‘tighten’ up the market Potential for predatory or destroyer pricing Find ways of reducing costs and increasing efficiency to gain competitive advantage
•   40. Contestable Markets ‘ Hit and Run’ tactics – enter the industry, take the profit and get out quickly (possible because of the freedom of entry and exit) Cream-skimming – identifying parts of the market that are high in value added and exploiting those markets
•   41. Contestable Markets Examples of markets exhibiting contestability characteristics: Financial services Airlines – especially flights on domestic routes Computer industry – ISPs, software, web development Energy supplies The postal service?
•   42. Market Structures Final reminders: Models can be used as a comparison – they are not necessarily meant to BE reality! When looking at real world examples, focus on the behaviour of the firm in relation to what the model predicts would happen – that gives the basis for analysis and evaluation of the real world situation. Regulation – or the threat of regulation may well affect the way a firm behaves. Remember that these models are based on certain assumptions – in the real world some of these assumptions may not be valid, this allows us to draw comparisons and contrasts. The way that governments deal with firms may be based on a general assumption that more competition is better than less!
Describe how oligopolistic competition exists in the real world giving examples from FMCG Companies.

OLIGOPOLY
Oligopoly is a fairly common market organization. In the United States, both the steel and auto industries (with three or so large firms) provide good examples of oligopolistic market structures.
MAJOR CHARACTERISTICS OF OLIGOPOLY.
An important characteristic of an oligopolistic market structure is the interdependence of firms in the industry. The interdependence, actual or perceived, arises from the small number of firms in the industry. However, unlike monopolistic competition, if an oligopolistic firm changes its price or output, it has perceptible effects on the sales and profits of its competitors in the industry. Thus, an oligopolist firm always considers the reactions of its rivals in formulating its pricing or output decisions.
There are huge, though not insurmountable, barriers to entering an oligopolistic market. These barriers can involve large financial requirements, availability of raw materials, access to the relevant technology, or simply patent rights of the firms currently in the industry. Several industries in the United States provide good examples of oligopolistic market structures with obvious barriers to entry. The U.S. auto industry provides an example of a market where financial barriers to entry exist. In order to efficiently operate an automobile plant, one needs upward of half a billion dollars of initial investment. The steel industry in the United States, on the other hand, provides an example of an oligopoly where barriers to entry have been created by the ownership of raw materials needed for producing the product. In this industry, a few huge firms own most of the available iron ore, a necessary raw material for steel production.
An oligopolistic industry is also typically characterized by economies of scale. Economies of scale in production imply that as the level of production rises the cost per unit of product falls for the use of any plant (generally, up to a point). Thus, economies of scale lead to an obvious advantage for a large producer. Once again, the automobile industry provides an example of a market structure where firms experience economies of scale. It should be noted that there may exist economies of scale in promotion just as there exist economies of scale in production. In the automobile industry, the promotion cost per unit of product falls as sales increase since promotion costs rise less than proportionately to sales.
ECONOMICS AND DESIRABILITY OF OLIGOPOLY.
There is no single theoretical framework that provides answers to output and pricing decisions under an oligopolistic market structure. Analyses exist only for special sets of circumstances. For example, if an oligopolistic firm cuts its price, it is met with price reductions by competing firms; however, if it raises the price of its product, rivals do not match the price increase. For this reason, prices may remain stable in an oligopolistic industry for a prolonged period of time.
It is hard to make concrete statements regarding price charged and quantity produced under oligopoly. However, from the point of view of the society, one can say that an oligopolistic market structure provides a fair degree of competition in the market place if the oligopolists in the market do not collude. Collusion occurs if firms in the industry agree to set price and/or quantity. In the United States, there are laws that make collusion illegal.
@@@@@@@@@@@@@@@@@@@@@@@


OLIGOPOLY
Oligopoly is a fairly common market organization. In the United States, both the steel and auto industries (with three or so large firms) provide good examples of oligopolistic market structures.
MAJOR CHARACTERISTICS OF OLIGOPOLY.
An important characteristic of an oligopolistic market structure is the interdependence of firms in the industry. The interdependence, actual or perceived, arises from the small number of firms in the industry. However, unlike monopolistic competition, if an oligopolistic firm changes its price or output, it has perceptible effects on the sales and profits of its competitors in the industry. Thus, an oligopolist firm always considers the reactions of its rivals in formulating its pricing or output decisions.
There are huge, though not insurmountable, barriers to entering an oligopolistic market. These barriers can involve large financial requirements, availability of raw materials, access to the relevant technology, or simply patent rights of the firms currently in the industry. Several industries in the United States provide good examples of oligopolistic market structures with obvious barriers to entry. The U.S. auto industry provides an example of a market where financial barriers to entry exist. In order to efficiently operate an automobile plant, one needs upward of half a billion dollars of initial investment. The steel industry in the United States, on the other hand, provides an example of an oligopoly where barriers to entry have been created by the ownership of raw materials needed for producing the product. In this industry, a few huge firms own most of the available iron ore, a necessary raw material for steel production.
An oligopolistic industry is also typically characterized by economies of scale. Economies of scale in production imply that as the level of production rises the cost per unit of product falls for the use of any plant (generally, up to a point). Thus, economies of scale lead to an obvious advantage for a large producer. Once again, the automobile industry provides an example of a market structure where firms experience economies of scale. It should be noted that there may exist economies of scale in promotion just as there exist economies of scale in production. In the automobile industry, the promotion cost per unit of product falls as sales increase since promotion costs rise less than proportionately to sales.
ECONOMICS AND DESIRABILITY OF OLIGOPOLY.
There is no single theoretical framework that provides answers to output and pricing decisions under an oligopolistic market structure. Analyses exist only for special sets of circumstances. For example, if an oligopolistic firm cuts its price, it is met with price reductions by competing firms; however, if it raises the price of its product, rivals do not match the price increase. For this reason, prices may remain stable in an oligopolistic industry for a prolonged period of time.
It is hard to make concrete statements regarding price charged and quantity produced under oligopoly. However, from the point of view of the society, one can say that an oligopolistic market structure provides a fair degree of competition in the market place if the oligopolists in the market do not collude. Collusion occurs if firms in the industry agree to set price and/or quantity. In the United States, there are laws that make collusion illegal.
@@@@@@@@@@@@@@@@@@@@@@@
COLA   MARKET
Two sellers shares the maximum market share
Ex: Pepsico and Coco-cola
====================  
WASHING  SOAP  POWDER
1.HINDUSTAN  UNILEVER
2.GOOREJ
3.PROCTER  &  GAMBLE

#########################


5.In any firm of your choice, try to find the effect of change in demand and change in supply on price and quantity of product.


Supply and demand come together in the marketplace.  With a downward-sloping demand curve and an upward-sloping supply curve, there will ordinarily be a point of intersection of the two curves.  That point shows the price at which the quantity demanded in the market equals the quantity supplied.  This is called an equilibrium point, and the corresponding price is the equilibrium price while the corresponding quantity is the equilibrium quantity.  At equilibrium, there is no tendency for price or quantity to change.   

Consider now prices below the equilibrium price.  The quantity demanded will be greater than the quantity supplied.  This is referred to as excess demand, or a shortage.  In the face of a shortage, consumers will compete with one another for the limited supply, and this will result in an increase in the price of the product.  The increase in price will stimulate a reduction in quantity demanded and an increase in quantity supplied (movements up along the demand curve and the supply curve) until the equilibrium point is reached.  Conversely, at prices above the equilibrium price, quantity demanded will be smaller than the quantity supplied, and there will be excess supply (a surplus) in the market.  With a surplus, firms will compete to sell their products, and this will result in downward pressure on the price of the product.  As with a shortage, there will be movements along the supply and demand curves as price changes, until the equilibrium point is reached.



Changes in Supply and Demand

When supply and demand curves shift, this results in changes to the equilibrium price and quantity.  For example, if there is an increase in demand (a shift to the right of the demand curve, as might occur with higher incomes, higher prices for a substitute good, or stronger tastes for the product in question), both the equilibrium price and equilibrium quantity will increase.  A decrease in demand will entail reductions in the equilibrium price and quantity.  If there is an increase in supply (a shift to the right of the supply curve, as might occur with improved technology or reduction in the prices of inputs), this will result in a decline in the equilibrium price and an increase in the equilibrium quantity.  Conversely, a decrease in supply will raise the equilibrium price and lower the equilibrium quantity.

You can see these changes by starting with a simple supply and demand graph showing an initial equilibrium, and then drawing the new demand or supply curve and observing the new equilibrium point.  In order to do well in this course, you will need to become proficient at drawing supply and demand graphs and using them to determine the consequences of changes in demand, supply, or both.

The four basic changes (increase in demand, decline in demand, increase in supply, reduction in supply) are illustrated in the diagrams below.  Note that in each case, there is a movement along the curve for the aspect that does not change.  That is, when demand increases, there is an increase in the quantity supplied (movement along the supply curve) as the market moves from the initial equilibrium price to the new equilibrium price.   Likewise, when there is an increase in supply, there is an increase in the quantity demanded (downward movement along the demand curve).

1. An increase in demand
Unit3-image1
2. A decline in demand
unit3-image2

3. An increase in supply


unit3-image3
4. A decline in supply
unit3-image4



demanded (downward movement along the demand curve).
1. An increase in demand
   2. A decline in demand

3. An increase in supply


   4. A decline in supply




Price Ceilings and Floors



We noted above that shortages and surpluses are not equilibrium situations, and that markets allowed to adjust to shortages or surpluses will move to equilibrium.  But sometimes markets are subject to regulations that prevent them from adjusting to shortages or surpluses.  This is especially the case with price ceilings and price floors.  The video at right illustrates how Germany instituted price controls after World War II.

A price ceiling is a maximum price that sellers may charge for a good or service.  Normally this maximum price is established by some governmental authority.  A classic example of price ceilings is provided by rent controls, where cities establish maximum rents in an effort to keep housing “affordable.”  If this ceiling keeps the market price below the equilibrium price, it creates a shortage that persists (since the market price is prevented from rising to its equilibrium level).

Think like an Economist...
Examples of price ceilings and floors in the news:
Florida insurance premiums
Penn State student football tickets

When price ceilings are in effect and the ceiling price is below the equilibrium price, it is no longer the case that supply, demand, and price alone can serve to allocate the product to different consumers.  The product must be rationed via nonprice mechanisms as well.  Allocation in these circumstances may be based on queuing (lining up to wait for distribution of the good or service), rationing coupons, or black markets (where illegal trading takes place at market-determined prices).

A price floor is a minimum price that must be paid in a market – i.e., exchange at a lower price is prohibited.  Governmental bodies typically establish price floors.  Two examples are the minimum wage and support prices for agricultural products.  If a price floor keeps the market price above the equilibrium price, it creates a surplus that persists (since the market price is prevented from falling to its equilibrium level).  This surplus typically will create some problems.  In the minimum wage example, it may contribute to higher unemployment than would exist in the absence of a minimum wage, and in the farm price support example it will translate into a need to cope with growing surpluses of agricultural products.  Again, nonprice rationing will be utilized.

EXAMPLE  Supply and demand  IN  FOOD.


THE EFFECT OF SUPPLY AND DEMAND ON PRICES...
Factors influencing supply and demand;
Short-term price fluctuations and their causes;
Long-term price changes;
Balance between supply and demand.
HORTICULTURAL MARKETS OPERATE IN A COMPLEX WAY...
How do price changes affect supply?
How do price changes affect demand?
How do demand changes affect price?
What is the impact of income growth?
THERE ARE CHANGES IN MARKETING ARRANGEMENTS AS ECONOMIES DEVELOP
The quantity of produce that consumers want to purchase is affected by many factors, the most important being:
•   price of the goods;
•   tastes and preferences of the consumers;
•   number of consumers;
•   incomes of consumers;
•   prices of competing produce;
•   range of products available to consumers.
The quantity that producers supply is also affected by a number of factors, the most important being:
•   price of the goods/products on the market;
•   price of inputs/costs of production;
•   technological factors;
•   climate;
•   storage possibilities.
The price of a product is mainly determined by supply and demand. Basically, a balance is achieved between what people are prepared to supply at a price and what people are willing to pay for the product. As the price rises the quantity that will be supplied also rises and the quantity demanded falls, and vice versa. It is important to note that:
Supply is what producers are prepared to sell at a certain price
Demand is how much consumers are prepared to buy at the market price
While supply is influenced by production it is not always the same as production (e.g. farmers may sometimes grow perishable crops and not harvest them because the price is too low). For less perishable crops, farmers or traders may decide to store them in the hope that prices will rise, rather than sell them immediately. When prices do rise they may take the products out of store to sell. At this time supply is equal to production harvested for immediate sale plus products taken out of store.
However, it should be stressed that demand is not how much people would like to buy, nor what they should buy for a healthy lifestyle. It is what they are prepared to buy at the prevailing price.
Short-term price fluctuations
Unlike the prices of staple foods such as maize or rice, horticultural product prices fluctuate enormously. They can fluctuate from day to day and during the day, depending on supply and demand.
The main causes of short-term price changes of fresh produce are:
1. The amount of produce on sale in the market on a particular day and the quantities sold in the previous few days.
2. Short-term demand changes (e.g. holidays and festivals).
3. The effect on demand of prices of competing products.
To take advantage of opportunities when prices are high a supplier needs to be in close communication with the markets and able to transport produce rapidly. In many countries farmers are increasingly able to deliver products, such as leafy vegetables, to markets when prices are high, using mobile telephones to contact buyers.
Seasonal price changes
In countries with pronounced seasons, supplies are low at the start of the harvest season, so prices are high. Prices are at their lowest when the crop reaches maturity in the main production areas. At the end of the season prices normally increase again as supply diminishes. Prices are generally highest during the off-season, when only a small percentage of farmers are able to grow the crop. These considerations are illustrated in Figure 4.
Supply and price changes over a season

Farmers who are located in areas where early or late-season crop production is possible (for example, hill or mountain areas) or who can use production methods, such as plastic tunnels or greenhouses, that bring forward the harvesting date, are best placed to take advantage of high early or late-season prices.
Similarly, production under irrigation can supply crops in the off-season when prices are normally the highest.

Long-term price changes
Figure 5 shows how production and prices can fluctuate from year to year. The graph shows how a season of high prices and low supply is often followed by a season of low prices and high volumes. This is because many farmers individually make the same decision to expand production in response to high prices in one year. Wiser farmers often deliberately decide to do the opposite to what their neighbours are doing.
Figure 5
Fluctuations in price and production over several years

Figure 6
Long-term relationship between prices and demand

Long-term balance between supply and demand
Figure 6 shows that the lower the price, the greater will be the demand. However, as the price goes down less will eventually be supplied (because farmers will produce less). Conversely, the higher the price, the more will be supplied. The relationship between what people are prepared to buy and what farmers are prepared to grow at different prices should eventually lead to a balance between supply and demand.
The theoretical point at which supply and demand are in balance is referred to by economists as "equilibrium". At this price there is enough incentive for farmers to produce the quantity that consumers will buy at that price. In practice, although the marketing chain tries to achieve this balance it is rarely done because there are so many factors affecting both supply and demand and because farmers lack adequate information about demand.
A BETTER UNDERSTANDING OF MARKETS
The way horticultural markets operate is complex. Markets are not very rational. Very often they appear to panic or overreact. If traders believe that there is a shortage of a product, prices will rise. Often, the increase is out of all proportion to any shortfall in supply. The converse is also true. If the market expects even a small oversupply, then prices fall rapidly.
The effect on supply of changes in price
High prices have a large effect on farmers' profits (as shown in Table 1). In the short term a farmer's response to high prices will be to try to increase the quantity of produce marketed. For example, tomato farmers may harvest green, unripe tomatoes. In the longer term the farmer will consider expanding the crop area and look for ways to increase production. In response to high prices farmers usually increase their production in the next season. As many of them make the same decision, there is a large increase in supply and oversupply occurs. Prices fall and farmers reduce production in the following season. This was illustrated in Figure 5.
The effect on demand of changes in price
When prices fall consumers increase their purchases. They buy less when prices rise. However, the response to price changes depends on the type of product. For example, increases in the price of staple foods eaten daily, such as maize, rice, roots and tubers or green bananas, have a relatively small effect on volumes of sales, as people still need to eat. Similarly, falls in price will not lead to major consumption increases. This is not the case with luxury or non-essential food items such as oranges and apples. Small falls in price can cause a disproportionately large increase in sales, while small price increases can lead to a big fall in sales.
Condiments, spices and other products that are used in small quantities are relatively insensitive to changes in price. Low prices do little to increase sales as people do not change their recipes to use more spices when prices are low. This means that when products like garlic are in over-supply, prices fall dramatically, as consumers do not respond to price changes by buying more.
The effect on price of changes in demand
Consumer demand and tastes change constantly. Short-term changes can be caused by the weather. In northwest Europe, sunny days increase the demand for salad crops (tomatoes, lettuce, cucumbers) but when the weather becomes cooler vegetables for cooking are in stronger demand. This leads to short-term fluctuations in the prices of these commodities.
Longer-term changes in demand are caused by changes in taste, attitude and society. For example, perceived health benefits have led to long-term growth in the sales of broccoli (considered to be an anti-oxidant which is believed to reduce the risk of heart disease) and garlic (also considered to be good for the heart).
In Europe there has been a fall in the sale of fresh vegetables that need to be peeled and cooked (carrots, potatoes, etc.) and an increase in demand for semi-processed, cleaned, easier-to-prepare products such as frozen peas and carrots and frozen potato chips. This is because people are now reluctant to spend as much time cooking as they used to. Richer European consumers are often described as "cash rich-time poor".
While prices of oranges have fallen, those of easy-peeling types of citrus have increased because consumers prefer the convenience of mandarins and clementines.
The effect of increasing income on sales
Food consumption patterns change as the amount of money that consumers have to spend increases.
1. Consumption of cereals barely increases as incomes improve.
2. Sales of milk products and beverages increase rapidly as incomes increase and, at higher income levels, these become the first and third most important expenditure categories.
3. Fruit sales increase most rapidly with increased income.
Information such as this helps to indicate the relative importance of specific products and identifies which products are likely to increase in sales as economies develop. Farmers in countries with growing economies need to be aware of these opportunities and extension workers need to have the knowledge to help them take advantage of the changes that are taking place.
RAPID CHANGES IN FOOD MARKETING ARRANGEMENTS...
The way that food is marketed is changing rapidly.
In general, the changes reflect changes in society and lifestyle.
Among the most important trends are...
• A rapid growth in populations in towns and cities which, in turn, means longer and more sophisticated marketing channels;
• People have less time to prepare food (e.g. because both parents work) but more cash to spend on prepared foods;
• There has been a decline in families eating together at home and an increase in taking snacks and eating out, particularly at fast-food restaurants;
• There has been an increased use of refrigerators and deep freezers, enabling food to be stored for longer and allowing fewer but larger shopping trips, and an increased use of cars which enables large quantities to be carried.
The changes in food marketing in developing countries tend to follow the pattern of change that has already been seen in developed countries. The speed of change is often much faster, particularly among the wealthier consumers. For example, between 1989 and 1997, richer Chinese consumers cut their consumption of grains by 15 percent, increased their meat consumption by nearly a half, doubled their egg consumption and tripled consumption of chicken and of vegetable oils. These changes took a century to happen in the West, but about a decade in P. R. China.
The overall trend in agricultural marketing has been the development of larger agribusinesses, the emergence of supermarket chains and the growth of trucking companies that can maintain cool chains. These companies are more sophisticated, demanding, professional and generally more powerful than traditional traders.
New ways of operating have to be developed by farmers if they are going to supply these new buyers. Traditionally, foodstuffs have been sold through wholesale markets where prices are determined on the day of sale. The growth in processing, agribusiness, supermarkets and international trade is leading to an expansion in long-term supply arrangements and a movement away from 'spot markets'. Processors and supermarkets need to ensure that they will receive guaranteed supplies of produce in the volume and quality they require and at the time they require them. This involves production planning and forward contracts. To work with such buyers it is normally necessary for small farmers to form themselves into official or unofficial groups and be prepared to supply on the basis of contracts. NGOs, in particular, are playing an increasingly important role in linking farmers to markets in this way.
Supermarkets offer a pleasant, convenient and hygienic environment in which to shop.
##############################################  

Dealing with Employees

All Answers


Answers by Expert:


Ask Experts

Volunteer


Leo Lingham

Expertise

Questions include managing work situation, managing work relations, managing your boss, personal problems, career planning, career development, training, coaching, counseling etc

Experience

18 years working managerial experience covering business planning,
strategic planning, management services, personnel administration etc

plus

24 years of management consulting in business planning, strategic planning, human resources development, training, business coaching,
etc

Organizations
BESTBUSICON Pty Ltd -- PRINICPAL

Education/Credentials
MASTERS IN SCIENCE

MASTERS IN BUSINESS ADMINISTRATION

©2016 About.com. All rights reserved.