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Supply & Demand Analysis in Business Action
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Del curso dictado por University of California, Irvine
Strategic Business Management - Microeconomics
9 calificaciones
De la lección
Supply and Demand
Conoce a los instructores
Dr. Peter NavarroProfessor
Paul Merage School of Business
[MUSIC]
In this final module of our lesson, we're going to focus on some really
interesting applications, supply and demand analysis in a business context.
But before we go there, let's first summarize how the market system through,
the forces of supply and demand, addresses the problem of scarcity.
And the three big questions that any economic system must address.
As you may recall from lesson one,
these three big questions are, what shall be produced,
how shall it be produced, and for whom shall it be produced for.
On the what question, this is answered by the myriad of signals amd market prices.
For example, higher oil prices will stimulate more oil production.
While lower food prices will drive resources out of agriculture.
Similarly if oil prices fall,
automobile manufacturers will build fewer electric and hybrid cars.
While a rise in the price of Copper would lead to more plastic irrigation
piping being produced
[MUSIC]
As for the for whom question,
the cold truth here is that in a purely market-driven system,
the power of the purse will dictate patterns of consumption.
To it, those with higher incomes, as a group, will end up with the larger houses,
more clothing, higher quality food, better healthcare, longer vacations, and so on.
Even the how question is decided by the forces of supply and demand.
For example, when corn prices are low it is less profitable for farmers to use
expensive tractors and irrigation systems and only the best land is cultivated.
By the same token, when oil prices are high,
oil companies will drill many more wells in deep offshore waters.
And employ very different, more expensive extraction technologies.
So that's the big market mechanism picture, it's a very interesting and
sometimes very unsettling picture.
Particularly when it comes to the for whom question and
the role of wealth in determining who in society gets what.
And that issue of income inequality
is certainly one we will revisit in a later lesson.
For now, however, let's end this lesson with some examples
from our business toon team about the how the supply and
demand framework can be put to work to help all sorts of businesses.
As well as the occasional homeowner, either increase their profits or
simply cut their cost.
So here's the hypothetical situation our business toon team will be working with.
Each member of the team has noticed a small story on their favorite news blog
about the possibility in the coming year of an El Nino weather condition.
In the comments on that blog,
they have seen that during El Nino two particular weather patterns are present.
Winter temperatures tend to be much higher, and
there is above average rainfall and often flooding.
So let's see now how our toon team members
are going to make a lot of money from this unfortunate weather news.
>> [NOISE] Chief, so what are we going to do about this El Nino weather condition?
>> I believe we should start by reducing our oil inventories for
the upcoming winter.
We must also consider laying some of our workers off.
>> I sure hope the boss is not talking about me.
>> It looks like the forecast is for an unusually warm and
wet winter in China, Europe, and the United States this year.
What is our strategy?
>> Well, we certainly should sell all of home heating oil stocks.
Sales and profits are sure to be down.
Stock prices will fall because of that.
>> That is a pretty obvious strategy, and
you can see that stock prices are already falling in that sector.
Do you have anything more clever?
>> Yes, I think we should buy stock in a good company that
gets a lot of revenue from selling allergy medicines.
>> Now, that is very clever, more rain will mean more flowering plants and
pollen.
That in turn means a more severe allergy season.
>> Yes, and bigger profits for the company and for the higher stock price.
>> Can we go inside now?
Our clients will think we are really dumb if we stay out here in the cold.
>> Charles, my dear, when are you going to get our leaky roof fixed?
The forecast is for more rain this winter.
>> Camilla, you are so right to remind me.
If we wait too long, the demand for roofers is going to go sky high.
We will wind up paying a much higher price for the repair.
>> Yes, it might be a king's ransom.
>> I need your advice Dexter, on how to deal strategically with the upcoming
winter which is likely to be unseasonably wet.
>> I am happy to do whatever I can do to help the chief financial officer at
my company.
Well, when it rains more, people will get more depressed and they drink more coffee.
>> Yes, that will shift automatic curve out, so
I recommend we speed up the construction of our new coffee shops in
the pacific Northwest where the rain is likely to be heaviest.
>> But we also have this problem, flooding in key coffee growing areas may result in
a bad coffee crop and we might have to pay more for coffee beans.
>> That is an easy fix >> We can go under the coffee futures
market and lock in the price of coffee beans now.
>> But what if we pay for those coffee futures and
the price of coffee does not rise?
>> Well, it will be a smaller price to pay insurance with coffee futures than risking
a big spike in coffee bean prices.
>> Okay, please get the word out to the team to implement of our strategy.
And now let us go and grab a cup of coffee.
>> Well I think you're gaining a handle on the big picture that supply demand
analysis helps bring into focus.
And here's my final thought for you.
In business,
you should never gamble where the odds of success are only 50 50 or less.
Instead, you want to be an intelligent speculator
who's trying to move the odds in your favor.
As I have just shown with a number of examples, that's exactly what a mastery of
supply and demand analysis can help you do in many different areas of business.
In the next lesson, we will delve more deeply
into the mysteries of the demand side of the supply and demand framework.
In the meantime, please remember that economics is not something to memorize but
rather something to conceptualize.
So as you study it, think about it too.
Your job and your business just might depend on it.
From the Paul Merage Business School at the University of California,
Irvinem I'm Peter Navarro.
We'll see you next time.
[MUSIC]
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