eco 550 strayer week 3 managerial economics

In this week’s discussion, you are going to be the CEO of a company. In anticipation of the upcoming quarterly disclosure of profits, you prepare your board of directors for the challenge that U.S. tariffs on Chinese imports are having on profits.

Conceptually, you will be asked to address elasticity as a measurement of the magnitude of a change. Additionally, you will be asked to examine how price elasticity of demand plays a role in consumer demand and how profits are affected by a tariff.

Instructions

For this discussion, please make yourself CEO of only one of these hypothetical companies.

1. ‘Tis the Season—’Tis the Season is one of the largest importers of holiday decorations, and the summer quarter is devoted to importing decorations such as lighting, artificial trees, table runners, and outdoor yard decorations—all of which have to be ready to ship by early fall. In fact, we at ‘Tis the Season have a highly inelastic supply curve, ramping up to produce decorations for each season, and then once that season has been shipped, we move on to the next season. Fortunately, the price elasticity of demand for almost all of our products is 0.19.
2. We Build Big—We Build Big is one of the largest developers of new residential structure in the U.S. We Build Big builds everything from apartment complexes to new single-family homes. Critical materials such as lumber, gypsum board, and fabricate metal are largely imported. At We Build Big, we know that our production process, the supply curve, is relatively inelastic. The concern over profits is that the price elasticity of demand for housing is 1.0.
3. Very Big US Auto—Very Big US Auto is one of the oldest and largest auto manufacturers in the U.S. Very Big US Auto’s supply chain is highly dependent on components manufactured in China and assembled in the U.S. Very Big US Auto knows that the price elasticity of supply is relatively inelastic and that demand is relatively elastic, with a price elasticity of demand of 1.2.

In your discussion post, address the following prompts within the context of your chosen hypothetical company of which you are the CEO:

• Is the demand curve for your product relatively elastic, inelastic, or unitary elastic? Demonstrate this for your company’s product by how much the quantity demanded will change if you pass on the 25% increase in cost from the tariff as a price increase for your product. In other words, show your calculation of the percentage change in the quantity demanded given a 25% change in the price.
• Given your company’s price elasticity of supply and price elasticity of demand, prepare a statement for your board of directors as to the potential impact of profits. Who will pay the larger share of the tariff: your firm or your customers?

Note: In your discussion posts for this course, do not rely on Wikipedia, Investopedia, or any similar website as a reference or supporting source.

To earn full credit for your discussion, you must complete one post and one follow-up or reply to a classmate. Make sure both the post and the reply focus on the questions asked.

Reply Quote

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As the CEO of a company, I selected “We Build Big, to share with the board of directors the potential impacts of how elasticity, demand and tariffs will have on profits of the organization.

To begin, for managers to forecast and interpret industry level changes, they should define their market or industry and know how the industry is going to change, as this will help to organize their opportunities.

Price elasticity measures how sensitive demand is to a change in price. A demand cure for which quantity changes more than price is said to be elastic or sensitive to price, and a demand cure for which quantity changes less than price is said to be inelastic or insensitive to price.

Elasticity relates to the price level. To explain, as price increases, consumers find more alternative to the good whose price has gone up, and with more substitutes, demand becomes more elastic. Inelastic is a demand curve on which percentage change in quantity is smaller than percentage change in price is said to be inelastic, or insensitive to price. Unitary elastic is when the value of both elements increases and decreases on an equally proportional basis.

To explain, the price elasticity of demand for housing is 1.0, which means that the demand curve for the product is unitary elastic.

Price Elasticity of Demand = Percentage change in Quantity demanded/Percentage change in price

1. = Percentage change in Quantity demanded/25;

So Percentage change in quantity demanded = 25 x 1.0 = 25%.

Therefore, percentage change in Quantity demanded = 25%

Which means that as the prices of housing increased by 25% due to the tariff, the quantity demanded also decreased by 25%. The value of both elements increased and decrease on an equal basis. In addition, the supply curve is relatively inelastic, which means that even though the price changed, there was very little change in quantity supplied. Also, now that the demand on housing has reduced, the construction would be housed in the warehouse causing operational and warehousing cost, which would affect the profit for the company.

As the CEO, of “We Build Big” I stand here to share how the US tariffs on imports have greatly affected our company and profits. The operations and warehousing cost have increased, which would affect our profit. To explain, if we pass the loss on to customers, and increase the price, the demand will reduce and overall we would lose more money. Therefore, the company should bear the cost of the loss due to the tariff.

CONCLUSION:

Do you think the CEO had enough information to make a decision or should he, add complements to their housing, increase the price and allow customers to make a decision on which product? In addition, in the long run, demand curves become more elastic.

Froeb, L. M. (2018). Managerial Economics: A Problem-Solving Approach (5th ed.). Retrieved from https://strayer.vitalsource.com/#/books/9781337468…