Analysis on Microeconomics

ANALYSIS ON MICROECONOMICS

Elasticity

This microeconomics analysis will discuss about the elasticity and how it affects the demand of a product. In this we will be using the Australian company, Harvey Norman as my example to show how elasticity of a product could affect the product in the market.

The articles that we are presenting about the Harvey Norman Corporation show that their sells had dropped for the previous years. This happens for the following reason:

* There has been a retail price deflation of most of the electronic products

* Buying new appliances were seen as a luxury of most of the buyers

* The 3D TV which is expected to increase the sales revenue do not have enough supply for the customers

* There has been a deflation of foreign currencies which affected the selling of the product

This happens because electronic devices are elastic products. Most people see the devices as a luxury therefore can live without it. People can easily find other alternatives for them to entertain themselves without buying costly electronic devices.

Likewise, the 3D TV, even though it is a luxury, people are still trying buying the device. The demand for the TV is high but the supply for it is low, which would lead to Harvey Norman to increase the price to increase their profit and to make it available only for those people who values it that much.

Because of the major financial crisis in the previous years, the exchange rate of foreign currencies had since been going down; the effect of this is that Harvey responded by lowering their products price. Harvey Norman tried to solve the low sales by lowering the price of their products but this does increase their revenue sales. They did sold many products but the revenue was low from these sales because they are selling it in lower price than it was before. The 3D TV, which they think would help their sales revenue, does not have enough supply to supply all costumers. This means that even though the demand is high from the buyers for the product, they could still not develop the target revenue because of lack of supply.

Solutions:

$3000- initial price

$1000- final prize

3.4%- change in demand

3.4% / ($3000 - $1000) / $3000= 5.07

This solution clearly shows that a costumer reacts strongly to any change to the electronic products being sold by the Harvey Norman, thus making it an elastic demand.

We think that Harvey Norman's move to lower the price to generate more sales is right if the company is only after the number of sales. The electronic devices are very elastic in demands. People respond much whenever a company lowers the changes the price for a product that is seen only as a luxury.

Reference:

http://www.smh.com.au/business/stimulus-withdrawal-flattens-harvey-norman-20100726-10sla.html

http://news.smh.com.au/breaking-news-business/harvey-norman-full-year-sales-flat-20100726-10rvp.html

http://global.factiva.com.wwwproxy0.library.unsw.edu.au/aa/?ref=AUSTLN0020100726e67r000c5&pp=1&fcpil=en&napc=S&sa_from=

DEMAND

We had chosen three articles to be analysed and the analysis will discuss the relevant of the article to the Law of demand theory in topic of supply and demand and a review of the key economic concepts that covered in the articles. Follow by the application of the theories to the argument that developed in the articles. Finally a critical assessment of the argument presented in the article.

According to the theory of the law of demand: other things being equal, when the price of a good rises, the quantity demanded of the good falls and when the price falls, the quantity demanded rises (Gans et al. 2009, p. 64).

The first article is from 'The Sydney Morning Herald newspaper aboutshoppers getting tired of sales', whichquite contradict to the theory of the law of demand. Based on a consumer behaviour survey, the method of holding constant discounting and sales to attract shoppers has lost it effectiveness (Cummins 2010). Consumers have become more discerning in where they spend on since the global financial crisis. According to the 2010 Recommended Retail Practice Report (Cummins 2010). This report further showed that only one in ten consumers still feel excited about the sales. According theory of the law of demand, discount and sales suppose to increase the attraction of the shoppers to shop more. However in this case it was contrasting to the theory. Although discount and sales had lower the price of the products, but the demand from the shoppers did not increase. There were other factors that affected the demand of the shoppers. The reasons will be explain in the second article that we will be analysing.

The second article is from The Australian newspaper about 'Consumer Confidence 'faces further damage,'' which is related to the first article and stated some reasons why sales did not appealing to the shoppers. This article stated that consumer confidence was affected by a minority government and associated uncertainty about economic policy.It further stated that according to The Australian Retailers Association (ARA), consumers continued to stay away from the shops, as the continuing political instability would have a negative impact on the sector (Kitney and Hepworth 2010). This means that, in order that the sales successfully attract the shoppers to shop more, the condition of the sales must not be affected by other factor. This is assent to the law of demand, which required other things being equal in order for the theory to work.

The last article is from Trader Business Media website about 'Retailers Brace for another tough year: ARA survey'. In this article stated that according to the ARA Consumer Spending Confidence Survey shows three quarters of consumers plan to become thriftier and 61 percent of them looking for sales. This is contradictingto the first, which stated that the consumers got tired of the sales but in this article, consumers want sales. Furthermore, 52 percent of the consumers spend time online to find the best deals before buying (Trader Business Media 2010). The theory in this article