ASSESSMENT # 1:
Economics and Ethical Issues
Business Enterprise: BUS508
Professor: George H. Barbosa, PH.D
The paper responds to the questions posed in section titled “Mrs. Acres Homemade Pies” at the end of Chapter 1. Shelly Acres, a founder of the company, faces the dilemma in producing homemade pies. Mrs. Acres Homemade Pies struggles to keep up with demand.
Question 1: Discuss What Will Happen to Supply, Demand and Price in the Short Term.
Supply is a various amount of product that producers are willing or are able to produce for ...view middle of the document...
Question 2: Discuss What Will Happen to Supply, Demand and Price in the Long Term.
In the long term, Shelly Acres will have an option. She will raise a price for pies and hire more employees to keep up with demand. She can apply to law of demand. In the law of demand it is stated that when price is low, demand rises. Relatively, when price gets higher, demand falls. There is an inverse relationship between price and quantity demanded.
Usually in the market rising demand causes raising price for the product. This is a normal process. So with raising a price for pies, demand may be lowered. However, the profit from each pie will increase. Mrs. Acres has to be able to keep up with demand. By increasing the profit on each sold item she will not lose money even if demand falls a bit. In other words, she will be able to provide enough supply to satisfy consumers.
On the other hand, raising a price on the product is quite risky decision for the business. Before making this major decision, Shelly Acres has to study market very well. She has to make sure that her raised price will not be too high for the product, which might be produced by her competitors as well. Good quality products attract many customers. However, unreasonably high prices may cause a fatal fall of demand.
In the long term, if demand keeps falling, prices for products can be lowered again. If Mrs. Acres Homemade Pies will start providing more supply than demand, she will need to drop prices on pies. This is also very careful process.
It is most important to grow in the business. It does not matter, in short or in long term, Mrs. Acres Homemade Pies has to keep up with demand. High demand guarantees more profit. The company has to hire even more employees and extend its facilities, if needed. Shelly Acres has to increase supply in order to grow the company’s profit.
Question 3: Explain Why You Think Supply, Demand, or Equilibrium Price Will Be Different, If at All, in the Short-term and Long-term.
The equilibrium price is the price where intentions of buyers and sellers match. It is a price where quantity demanded is the same as quantity supplied. Usually, a competition between buyers and sellers drives the price to equilibrium price.
In our case demand and supply will change in the short term as well as in long term. Demand for pies was rising and it will probably keep going higher. Consequently, supply will change as well. So, demand and supply will be different in both terms. However, in short term Mrs. Acres Homemade Pies should not change prices, although, the equilibrium price will vary in short and long terms.
Since Shelly Acres should consider price raise in long run, it will cause the equilibrium price change as well. This is an ongoing process. Supply and demand are constantly changing with economic conditions, availability of resources and competition.
In the first stage of the business...