ECONOMICS FOR MANAGERS
General Instructions:
1. This is a group project where students are allowed to form groups, each group containing
a maximum of 4 members.
2. This project is worth 30% of the total grade.
2.1 A written Report – 20%
2.2 A test on the project – 10%
Tasks
In a team of no more than 4 members, you will examine a UAE business and apply key
economic concepts to its performance, covering the first 5 Learning Outcomes of the course.
You will be graded as follows:
A formal written academic report (20%) completing all project tasks including a
summary of findings.
There will be an individual closed book test on the project worth 10%
The weight of the project in total grade is 30%
Solution
Main Products and General Characteristics of the Firm
Jashanmal company was established 1919, since then, the name Jashanmal has been a
household name and a reliable partner for international fashion, footwear, home appliances,
travel gear and publishing companies seeking to do business locally and also regional
environment. The company has more than fifty retail shops around the UAE; it has also extended
several distribution networks to more than nine hundred outlets. The success of the company was
supported by a proprietary logistics network that manages freight-forwarding, warehousing,
regional and international supply chains. The company has attracted a number of partners in the
region, due to this it has an equity partner in a number of regional joint ventures and actively
seeks partnerships with firms looking for market-entry into the areas it operates in.
Jashanmal has its headquarters in Dubai with offices in Abu Dhabi, Kuwait, Bahrain,
Oman, Qatar and also India. In addition the company operates in an expansive range of trading
sectors and segments with activities that cover the following categories: firstly, the retail
network, which has over one hundred and fifty stores that includes department stores,
bookstores, apparel boutiques, footwear outlets and travel retail. Secondly, the joint venture,
which include equity partnerships, with a large number of companies in varied product
categories including fragrance and beauty, luxury fashion, courier and logistics media services
and also the government. Lastly, a vast distribution operation of more than nine hundred points
of sale with products ranging from luggage to home appliances, corporate gifts, perfumes and
cosmetics to consumer electronics and print media products. The company has the following key
clients; business groups, Duty Free operators, supermarkets, hypermarkets and department stores
across the region (Jashanmal Group, 2016).
Though Jashanmal offers a wide range of product in this report, we will just examine just
two of its product that is the Hoover and Thermos. For many years, Hoover sold by the company
has been considered to be powerful and easy to use products; they clean the entire home from
floor to ceiling regardless of the size, the first Hoover was built in the year in 1907. When a
customer buys a hover the company offers him or her both monetary and non-monetary
discounts. Monetary discount is rate is set as from, five percent of the cost of the product while
non-monetary discount includes item such as the disposable paper bag, the vacuum cleaner
ECONOMICS FOR MANAGERS 3
headlight and the side mounted hose feature. Jashanmal choose Hoover as one of their products
because Hoover is a leader in the floor care industry and manufactures high quality, high
performance vacuum cleaners for home and commercial settings. In addition, Hoover are
developed using the latest technology, and puts the customers taste into consideration so as to
deliver most efficient cleaning products. Jashanmal is also dedicated exclusively to appliances
and kitchens, thermos being among the kitchen requirement. Sold by Jashanmal, Thermos'
vacuum insulation technology keeps food or drinks hot or cold longer. Jashanmal has variety and
large assortment of beverage bottles and food jars, you are sure to find the product to meet the
need of the customers
Apart from developing and selling high quality products by using new technologies,
Jashanmal is passionate about being an environmentally friendly. Jashanmal welcomes and
attract customers by offering discounts in different periods and seasons so as to increase its sale,
for example, the discounts include Jashanmal Weekend Offer started on January 2016, and it
gives an extra ten percent off in addition to every sale. Jashanmal UAE national day offer.
Jashanmal discounts of up to one hundred percent when the customer purchase any Refrigerator,
Cooker, Washing Machine, Dish Washer, Dryer, Kitchen Machine, Coffee Maker or Vacuum
Cleaner from our wide range of leading brands.
Table 1
Year 2015
Product
name
Discount
price %
Number
of
customers
Revenue
$
Regular
price
Number
of
customers
Revenue
Hoover 5 1 10 12 5610
Thermos 3 2 5 8 3 4880
The firm Opportunity cost is the cost expressed in terms of the next best alternative
sacrificed. Opportunity cost is central to the whole study of this business as it is at the heart of
the decision making that characterizes the essence of disciplines.
ECONOMICS FOR MANAGERS 4
Table 2
The a table shows how the two products respond to the discount.
Hoover
(Sales per
month)
Thermos
(Sales per
month)
Volume of sales before the
10% discount
155
155
Volume of sales after the
10% discount
165
170
Analysis of the firm’s supply and demand:
In Jashnamal, supply Chain consists of a series of activities in which a product or a
material is transferred from one point to the final point where it is being sold in order to provide
maximum satisfaction to customers. The company’s focus on supply and demand is on the costs
and efficiencies of supply, as well as the flow of materials from their various sources to their
final destinations. The management has ensured it has an efficient supply chain that reduces
costs and maximizes on profit.
Change in consumers’ income:
Normally a change in the price of a good causes the purchasing power of the consumer’s
Income to change even though the amount of income is the same. When the supply management
team of the Jashanmal decides to reduce the price of the thermos, it will make the customers feel
like they have more income because they can buy the same product at a lower price and remain
with more money than before. In some cases, the management decides that the price of thermos
ECONOMICS FOR MANAGERS 5
remains constant as income of customers also remains constant. In this situation where income is
constant, the effect of income may still cause a change in the demand for the thermos this
because the purchasing power of money is also affected by inflation, this makes consumers feel
poorer because after the price increase they cannot buy the same products even though they still
have the same amount of income, but its value is smaller (Varian, 2014).
In the UAE, some individual considers a thermos to be a normal good while
another sees it as case a luxury, in the case of a normal good, it is clear that the price and
quantity demanded are inversely related along demand of the thermos. In terms of income for
normal good in this case the thermos, the income effect always reinforces the demand effect and
further strengthens the inverse relation between price and quantity demanded of thermos by the
customers. Consumers' income is a major determinant of what they can afford to purchase. As
consumers’ income increases, their demand for products and services increases. In a situation
where a consumer loses his or her job, his or her demand may decrease. On the demand curve, an
increase in income shifts the demand curve to the right, while a decrease shifts it to the left. As
shown below;
In some situation there is an exception to the behavior of a demand curve, where the
product prices increase consumer demand is always high.
dd
y
x
Consumer income (Y) is a key
determinant of consumer demand (Qd).
The relationship between income and
demand can be both direct and
inverse.Since the thermos is normal
goods, income and demand are directly
related, meaning that an increase in
income will cause demand to rise and a
decrease in income causes demand to fall
ECONOMICS FOR MANAGERS 6
Change in Prices of competing products/services:
In a normal situation, when there is a change in the price of a product, it is observed that
the change has an opposite or a reverse impact in terms of the quantity demanded by the
consumer. In a competitive market like in the UAE, companies differ in price of the same
product thus create a price competition situation. Price competition is a situation where different
companies try to distinguish their product or from competing products on the basis of low price
so as to attract more customers. In this situation the management of the company manipulates the
price of the products so as to compete in the market. This is why in Jashanmal the supply
department decided that for Jashanmal to be successful in the market, the cost of thermos should
be lower than the others. The company is able to achieve this by always fluctuating the price
while at the same time compare it with the normal market price. Offering bigger discounts to
consumers by the company attracts them to select substitute products, as compared to other
companies. These substitutes act as competition for your business. Thermos has complemented
with other products like tea. Complement products for thermos affects the prices and demand for
the thermos, for example. If the price of the complement increases, it can cause the demand for
the thermos to increase. As a result, the demand curve shifts to the right, the changes price levels
of a competing product have a negative relationship to the quantity of goods that the consumer is
willing and is actually able to form the company (Ekstedt and Fusari, 2010).
Change in the number of consumers:
It is obvious that the consumers are the main subject when it comes to demand of a
product. The number of customers may change in terms of population and also in term of
customers’ tastes and preferences depending on the season and also political environmental
factors in the region. For example, during summer, many individuals may prefer to move to
another region, the immigration and immigration leads to population change thus change the
number of customers in the region (Sproule, 2015). To deal with this issue, about change in the
number of customers, Jashanmal has carried advertisement programs so as to attract more
customers, advertisement increases the level at which a customer desires product and also affects
the demand curve. As more customers want a product, the demand curve shifts to the right, and
as they want it less, the demand curve shifts to the left. The decline of the number of customers
ECONOMICS FOR MANAGERS 7
and the decline in the preference for the thermos will shift the demand curve inward as shown in
below figure.
The effect of a change in the number of customers on demand can be either short run or
long run depending upon the decision the company will take to improve the situation.
Change in technology;
Innovation of technologies in markets emergence is a larger phenomenon, in today’s
world, most retailers are looking for innovative ways and idea to redefine the way they do
business, Jashanmal being among them. Improvement in making of thermos which is more
durable and of high quality via the breakthrough of innovation has created a new market for the
product. As consumers started becoming more demanding in the today's challenging and
competitive market in the UAE, Jashanmal opted to choose technology, which was seen as an
opportunity by the company to make the supply chain more responsive and customer oriented in
much number of ways. The key aspect introduced Jashanmal was through making use of the
technology available, this improved the visibility of the product in the supply chain and it allows
real time, accurate information to be easily accessed and shared collaboratively with all the
parties, that is, the customer and the company, within the chain so that appropriate action can be
taken to increase the demand (Kwak et al, 2015).
dd
y
x
When the population of
customers decrease many cause
the demand ti decrease and
cause a shift to the left of the
demand curve from point B to
point A on the demand.
A B
ECONOMICS FOR MANAGERS 8
The advancement in the information technology within the company has changed the
entire thermos supply chain operation over the last five years trying to use it from ensuring better
coordination between members of the supply chain to making use of bar codes and other
technologies to trace the product and its market demand level. Information obtained from digital
platforms was crucial to the performance of supply of thermos because it provides the basis on
which supply managers make decisions. Technology made it easier for the company to get
information that enabled them to know what the customers want, how much inventory in stock,
and also when more products should be produced. Technology can affect the supply; the supply
curves are drawn assuming a given technology. Over time, technology available may change, so
if good manufacturing technique is followed, then supply curve will always shift toward higher.
This below diagram shows how the information is flowing through the supply chain to trace the
origin of the product
Change in the number of firms:
The UAE in general, is a very competitive market place and Jashanmal being among the
companies located within this region, obviously it involves itself in competitive marketing, and
Advanced and improved technology
reduces the cost of production and
raises the profit margin. Supply rises
from OQ to OQ 1 at the same price OP.
It leads to a rightward shift in the
supply curve from SS to S 1 S 1 .
y
x
dd
Increase in number of firms (Y) is a key determinant of
consumer consumption and profit made by company (Q
d). The relationship between the number of firms and
demand can be both direct and inverse. Firm and demand
are indirectly related, meaning that an increase in number
of firms will cause the revenue of the company to decrease
hence causes demand to fall in the same company
ECONOMICS FOR MANAGERS 9
there are large numbers of competing companies to compete with. In addition, there are so many
buyers and suppliers with no differentiation of the product in the market so they see the product
such thermos from other companies to be the same. Usually the company does not determine the
prices of the product, rather by the demand in the market. The actual goal of all firms in the
market is to make as much profit as possible (Gabszewicz and Thisse, 2014). In these markets,
factors of production are freely mobile between the firms like Labor can move from one firm to
another, thus competent worker from one firm can move to another firm, thus affecting the first
company. The entry of new firms to sell the same product is easy as there is no entry barrier for
new firms. When new firms enter the market to offer the same product, it will reduce the market
share of other companies, hence eliminating the revenue increment.
Since Jashanmal is selling the homogeneous product so its market shares to be very
small such that it cannot increase the supply of the product.
Changes in costs of production
Jashanmal company has both fixed and variable categories of cost. Fixed costs are costs
that are not affected by the quantity produced or supplied in the market. The premises where the
company is carrying out its operation remains the same and also manufacturing equipment is the
same regardless of how much it is used. On the other hand, variable costs depend on the quantity
produced or supplied, for example the transportation cost of a single product is not the same with
transportation cost of many products. Normally, fixed costs cannot be changed in the short run;
firms may find it optimal to produce a product even though it is not making profits. The cost
figures on a demand curve can represent what a business charges its wholesale buyers, who set
their own retail prices, or the manufacturer's suggested retail price. In either case, the price needs
to represent a sustainable profit for the manufacturer. Production cost includes what the
manufacturer pays for raw materials, production equipment, labor and licenses for patented
manufacturing processes or design elements (Nahmia and Olsen, 2015).
Analysis of the Price Elasticity of Demand for one of the products.
ECONOMICS FOR MANAGERS 10
Price elasticity of demand is the degree by which quantity changes as price changes; it is
the percentage change in quantity of the percentage change in price having in mind that the law
of demand state that when price is increasing quantity demanded is decreasing. Elasticity varies
among products because some products may be more essential to the consumer. Products that are
necessities are more insensitive to price changes because consumers would continue buying
these products despite price increases. The Hoovers are said to have elastic demand, because
they have the following characteristics; they have close substitutes, and they are seen as a luxury
good for many homes (Foxall, 2013). When the price of the Hovers drop, usually results in an
increase in the quantity demanded by consumers thus increase in profit. In contrast, the demand
for Hovers is relatively inelastic when the change in quantity demanded is less than the change in
price. One of the primary objectives of a business is to provide quality products and services to
customers, and through this to make a profit as a strongly related objective measure. Many
organizations fail to make an appropriate profit because they do not know how to price their
products or services.
The price elasticities of demand for Hovers and Thermos
Using the midpoint method, the percent change in the quantity demanded for Hoovers is
165 – 155 0.1
−−−−−−−−−−−−−−−−−−−−−−−− x 100 = −−−−−−−−− x 100 = 6.25%
(155 + 165 )/2 1.6
Since the change in price is 10%, the price elasticity of demand for Hovers is 6.25%/10% =
0.625
Using the midpoint method, the percent change in the quantity demanded for Thermos is
170 – 150 0.2
−−−−−−−−−−−−−−−−−−−−−−−− x 100 = −−−−−−−−− x 100 = 12.5%
(150 + 170 )/2 1.6
Since the change in price is 10%, the price elasticity of demand for Thermos is
12.5%/10% = 1.25
In conclusion, consumers in a market economy are inclined by various factors in deciding
what to buy. Some of these factors include price, technology, cost, and the law of demand that
ECONOMICS FOR MANAGERS 11
defines the typical relationship between price and quantity demanded. The law of demand, states
that consumers will demand particular product at a lower price, and less at a higher price.
However, the price elasticity of demand extends this and observes the extent of such changes in
demand in relation to price. It is the sales director's duty of Jashanmal to check the demand
increase or decrease in response to a price change in business. So using the methods in elasticity
of demand we can analyze the profit of the firm and also revenue over a certain financial period.
ECONOMICS FOR MANAGERS 12
References
Varian, H. R. (2014). Intermediate Microeconomics: A Modern Approach: Ninth International
Student Edition. WW Norton & Company.
Ekstedt, H., & Fusari, A. (2010). Economic theory and social change: problems and revisions.
Routledge.
Sproule, R. (2015). An argument for the use of the square-root functional form in teaching
undergraduate microeconomics. International Review of Economics Education, 20, 37-
45.
Kwak, Y., Nam, Y., Kwak, Y., & Yoo, P. H. (2015). A Study of Price Response Function for
Asymmetric and Non-Proportional Demand Response to Price Change.
Gabszewicz, J. J., & Thisse, J. F. (2014). Entry (and exit) in a differentiated industry.
Noncooperative Approaches to the Theory of Perfect Competition, 3, 213.
Nahmias, S., & Olsen, T. L. (2015). Production and operations analysis. Waveland Press.
Foxall, G. R., Yan, J., Oliveira-Castro, J. M., & Wells, V. K. (2013). Brand-related and
situational influences on demand elasticity. Journal of Business Research, 66(1), 73-81.
Jashanmal Group , (2016) < http://www.jashanmalgroup.com/our-brands/jashanmal-home-
stores/>
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