Business Enterprise

Case 1 Mrs. Acres, Homemade Pies
The supply, demand and price of a product in the short term

Mrs. Acres homemade pies business is a reflection of what happens in normal market where the price of commodity is determined by forces of demand and supply. To meet the demand of customers, Shelly and other employees should maintain quality and she gives her employees incentives to boost their production. Any particular business needs efforts and good measures for it to expand. Due to good policies, Shelly was not in a position of meeting the supply of pies to her customers and she employed certain strategies such as maintaining level of production and raising prices, expansion of the facility and staff while she maintained current price, and contracting production of pies hence getting a given percentage of profits. These are some of the measures that business people should consider in order to meet demand of customers through supply.

The supply, demand and price of Shellys pies in the short run will change due to adoption of the three strategies. The law of supply reflects the amount of products a willing supplier is able to produce and avail it to the market at a given price in a specific time period. In the short run, supply of pies will increase if the prices are high and demand is high. Suppliers incur a lot of costs while making products available in the market. At low prices, only efficient suppliers are willing to produce products and make profit (Edwards, 2000). When prices are high and the demand is high, suppliers make products available in the market first to meet demand and second to make high profits. The three options by Shelly are sufficient because when the production level is maintained, supply will be constant, demand increases and the prices are high and thus she gets high profits in the short term.

The law of demand shows that the quantity of products a consumer is wiling to purchase at different prices within a given period of time or supply. When the demand is low and supply is high, product prices reduce and when the demand is high and supply is low product price increases. Supply, demand and prices in economics are related and in the case of Shellys business, she could not meet the demand of pies and thus had to adopt various options. In the short run, supply depends on the price of product and demand of goods and services.

The supply, demand and price of a product in the long term
In the long run, the supply and demand of products will be equal by making the price to be at equilibrium. Changes in production and demand of the pies will make customers change their purchasing power and this makes the prices of product to fall. In the long run, the second and third options are better because entering in a contract means Shelly does not involve  herself in affairs of production thus she gets the agreed percentage of profits. Whether supply is low or high, demand is low or high and prices are high or low she gets profits as per the terms of the contract (Lai, Yu, 2003).

Equilibrium is the point at which the quantity demanded and supplied is equal. There is no surplus or shortage of products. In economics, shortage occurs when demand is greater than supply resulting to low prices. On the other hand, a surplus occurs when prices are too high thus the purchasing power of customers is too low. In the business of Shelly, a shortage occurred because she could not supply enough pies to meet the demand of her customers.

Difference between supply, demand and equilibrium price in short term and long term
Changes in prices due to certain factors of production results in movement along demand and supply curve and this creates a change in demand and supply. Equilibrium price is achieved when supply and demand are equal. At any given point of production, supply and demand tend to be equal resulting to an equilibrium price. To increase the prices of product, suppliers are forced to reduce the quantity demanded in the market. This results to replacement of consumers who had withdrawn from the market due to shift in demand. However, factors such as weather change in consumer preferences, technology and lifestyle leads to difference in market supply, demand and equilibrium price. Changes in consumer preference contribute to changes in supply and demand. This happens because of luxury commodities and necessities.

A luxury commodity has a short term shift in demand due to snob effect while necessities have long run demand curves. Technology is another major factor that explains why there is difference in equilibrium between supply, demand and equilibrium price. The major products that are affected by technology basically include agricultural products. Technology changes the supply patterns by cutting down the cost of production, when demand is not sufficient to absorb the excess goods produced at low costs the prices of the commodity are usually low. Shift of supply that is coupled with low demand leads to change in price of the product. On the other hand, when demand is high and supply is low, the prices of the product goes high making equilibrium price to shift up (Lai, Yu, 2003). In the case of Shellys business, the supply of pies could not meet demand in the market thus this resulted to increased pies price.

Case 2 Laundry detergent
A monopolistic competition is a market structure where several producers sell differentiated products such as laundry detergent.  There are various factors of production that should be considered by a producer and supplier of laundry detergent. These economic factors include natural resources such as land, human resource that is labor and financial resource such as capital and entrepreneur. The use of these factors of production helps producers to meet demand of customers and to give business competitive advantage over other similar products. Land as a natural economic factor is used to produce raw materials for production of laundry detergent such as calcium. This factor gives a business competitive advantage through production of various similar laundry detergents.

Labor is a human resource that is used in the process of production. Without labor, the production of laundry detergent cannot be complete. Labor is used through out the process of production, packaging, distribution and marketing. As a human resource, it gives the business of laundry detergent competitive advantage through marketing of various detergents. Financial production factor is capital that includes human man made means of production such as buildings and machinery (Edwards, 2000). Capital is used to purchase machinery used fro production of laundry detergents. Machinery is used to produce similar laundry detergents that are sold in the market and this is one major resource that gives a business competitive advantage.

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