Microeconomics applied in Industry

                                             Nike Co.

The company that I have chosen is NIKE , one of the leading brand in the footwear and Sports wear industry.
It has a wide range of product such as shoes, sports wear, athletic apprals and golf wear.

5 concept of microeconomics can be applied are as follows :-

1. First economic problem is Scarcity

Scarcity is the additional want over what can be produced to fulfill that want, especially when there is only a limited amount of resource is available.
Nike produced 200 shoes and 350 shirts due to limited resources but they want to produce more shoes, then they would sacrifice a certain amount of shirts in order to produce more shoes.

2. Law of Demand

When there is a sale all Nike products will be discounted, during this time , the sales generated would increase as customer are willing to purchase more .
There are 2 reason for the demand can exists are
  i) income effect ( afford more at lower price )
  ii) substitution effect ( substitute cheap good for similar one )

3. Law of Supply

It is the relation between the quantity that is supplied and the price of a product or a service during a certain period of time .
    When a new product is released and sold at normal price because of its limited edition, more customer would rush and purchase.

4. Elasticity of Demand

When their are more substitute products, the customer can easily switch to other products.
    Competitors like Adidas, Reebok, New Balance etc. So when the price of a Nike shoe are too high then the consumer can easily switch to other competitors product.

5. Price elasticity of supply

Individual response of the quantity supplied to a change in price .
      The cost rise a output rises , where by the lesser additional costs to produce extra output, more firms will be encouraged to produce thus the supply is said to be elastic.

Know Our life From Economics Point Of View

Law Of Demand :-

It is the inverse relationship between the price of a goods and the quantity .
Example:-

• In flipkart when big billion day come people do more shopping because, we get discount and prices are low.

• If we are going to market and see different type of apple with different rate like 100 rs/kg and 60 rs/kg. A buyer can willing and able to buy 2 kg of first one then customer can buy 4 kg of last one.

Law of Supply:-

 It says that when price goes up quantity goes up and vice-versa.
Example:-

• When any popular celebrity come for concert, price of ticket is high so event team provide more ticket for benefit.

• When price of  onion start decreasing the producer decrease the supply of onion in market.

Elasticity:-

It is a measure of the sensitivity of one variable to another.

Example:-

• When the price of Postpaid service  is increase we are switch to prepaid service.
• D Mart gives us discount that is benifbenef for us so many customers of Big Bazar are move to D Mart

Consumer Surplus:-

 It is the different between the price consumer willing to pay and consumer actually pay.
Example:-

• I want to buy new mobile and my budget is 10000. I search a mobile and I find a mobile of 10000. But I have to pay only 9000 because there was 10% off using SBI Credit card and that 1000 is consumer surplus.

• When we go to the  Reliance mall for buy product a  with certain budget and we see that Reliance giving 50% off in that product and we buy happily. That 50% off is the Consumer Surplus.

Producer Surplus:-

It is the difference between the producer is willing to sell and the price actually sold.
Example:-

• I want to sell my bike at 35 k for buy a new bike. After market research i find that the price of my bike is 40 k and I sold it at 40 k at Olx.com. Here 5000 is producer surplus.

• When we go to the market and ask a shopkeeper price about a shirt they say 1000 though they want sell it at 500 and after bargaining we buy it at 700. Here 200 is producer surplus.

Elasticity and Revenue and its types

Elasticity:

Elasticity is defined as change in the quantity based on the products price and consumers income.For example if we want to purchase a product which is  available at multiple places automatically we will go to whoever is giving the lowest price.

                              Elasticity =% change in quantity/% change in quality

Elasticities can be divided into 3 broad categories.They are:

1.Elastic

2.Inelastic

3.Unitary Elastic

1.Elastic:

In this category there is an reduction in price to increase the revenue.

                            

                           %Change in Quantity/% Change in Quality >1

2.Inelastic:

In this category there is an interest in price to increase the revenues of the purchase.

                            %Change in Quantity/% Change in Quality <1

3.Unitary Elastic:

In this category the hold price is constant and there will be no effect on revenues.

                     

                            % Change in Quantity/% Change in Quantity=1

Supply, Demand and Elasticity

Consumer interview or surveys market studies and experiment regression analysis -

Supply:- Willingness and ability of the producers to offer the goods in the market for sale at given process.
Demand:- Consumers desire, ability and will to purchase goods at various price.
Elasticity:- It is a measure of the sensitivity of one variable to another.

• Percentage change that will occur in one variable in response to a percentage change in another variable.
• Point elasticity - Elasticity at a given point on a function.
• Arc elasticity - Average elasticity over a given range of a function.

The Supply Elasticity

Elasticity of Supply

Definition of Elasticity:

Ever think of finding out the comparison level of two variable? Well, Elasticity is the best option. Elasticity refers to the measure of the sensitivity of one variable if the other changes. For example, Advertising elasticity is the relationship between the ad budget and the changes in sales volume.

Economists are often  interested in elasticity of demand and elasticity of supply.

The scenario of elasticity can be of three types mainly
1. When elasticity is greater than 1 i.e elastic situation
2. When elasticity is less than one i.e inelastic situation
3. When elasticity is equal to one i.e unitary elastic situation

Elasticity has various determinants which are as below

Elasticity is one of the prime factor to consider in managerial as well as business decision making.
It helps in deciding proper price, channeling the supply and handling the demand to make business successful.

Elasticity of Supply

The elasticity of supply is a measure of a company’s ability to increase or decrease production in response to a price change. It is also referred to as the price elasticity of supply.

Why it matters

Elasticity of supply tells us how fast supply responds to quantity demand and price increase. When there is a popular product that is in short supply for instance, the price may rise as a result. The manufacturers of that product will increase output (the supply) to keep up with the demand. The higher the elasticity of supply, the faster the supply will increase when demand and price increase. Some goods/services are more supply inelastic however, whenever there is a supply shortage. Limited tickets to a concert may have a very inelastic supply. The price of the concert tickets can be raised to any amount, but because there is a fixed number of seats and tickets, the supply (of tickets sold) may not be increased by much if at all.

Supply Determinants

• Flexibility of inputs

When you go to hotel, the most important person is chef. If chef is absent nothing will go, chef cant be replaced.

• Mobility of inputs

Theater group, they will be performing in different countries, different events. But the machineries are not easy to relocate.

• Durability

• Time

Drivers are elastic inputs but if you have a urgent meeting and that driver become unavailable for that time period that moment he cant be replaced.

• Ability to produce substitutes inputs

If anything can be substituted then inelastic goods is turned into elastic.

How buyer's and sellers respond to change in market conditions ?

Imagine that some event drives up the price of petrol and diesel in the India. It could be a war in middle east that disrupts the world  supply of oil, a booming Chinese economy that boosts the world demand for oil, or a new tax on crude oil passed by the existing government. How would India consumers respond to the higher price ?

It is easy to answer this question in broad fashion: consumers would buy less . This is simply the law of demand we learned but you might want a precise answer. By how much would consumption of petrol and diesel ?

However you might be curious about the answer to the petrol and diesel question. Many studies have examined consumers respone to petrol and diesel prices, and they typically find the quantity demanded responds more in the long run than it does in the short run. A 10 percent increase in petrol and diesel prices reduces consumption by 2.5 percent after a year and about 6 percent after five years. About half of the long run reduction in quantity demanded arises because people drive less and half arises because they switch to more fuel efficient cars. Both responses are reflected in the demand curv and its elasticity.

Price Elasticity of Demand
Depends upon various factors like:
1. Availability of close substitutes
2. Necessity versus luxuries
3. Demand in the market
4. Time horizon