Changes to Demand

There are four main determinants of demand.  They are:

-       Preference

-       Income

-       Prices of related products

-       Future expectations

There are also a few other determinants, including Size of the market population (a growing population means demands goes up) and change in distribution of income.

A great example of changes to demand would be Tim Horton’s.  During the cold winter in Canada, people are often stopping by Tim Horton’s for a hot coffee.   But when summer hits, the demand for an ice cap rises dramatically.  This is due to the consumer’s preference toward the product.  With the same scenario, Tim Horton’s can also experience a change of demand (decrease) if their competitors were to put a similar product on sale, or boost in advertisement towards their brand.  For example, second cup’s Chiller, Starbuck’s ice Frappuccino, or even McDonald’s Ice Blended latte.  This would be an example of “substitute product”.

The following graph is a mock example of changes in demand for Tim Horton’s Ice cappuccino:

The "Game"!!!!

In the "Game On" exercise, we have to pick one of three online flash games to play.  Without hesitation, I picked the "MacDonald's game. (http://www.mcvideogame.com/game-eng.html) In this game, the player, as "God of MacDonald's" have four screens to manage:

- The farm
- The feedlot
- The Restaurant
- The Office

In this flash game, you have to control the company, from the farm to the feedlot, the restaurant, and deal with all other concerns like negative news, fundraiser or even unhappy employees.  Although it looks like a simple game, but there are so many small details that you have to pay attention to in order not to bankrupt the company.

This game has taught me a great lesson, in both economics and management.  I started out with a small farm, one small cow barn and seeded two pieces of land to provide pasture for the cows when they go into the feedlot.  I hired two employees in the restaurant, one to make burger patties, and one to take care of the cashier. It was smooth sail, and I felt very comfortable with how the business was going.  In time, some of the cows in the feedlot will get sick, and I have to ensure I destroy them before they hit the meat patty machine.  In time, the business started growing.  With constant line up in the restaurant, I had no choice but to hire another cashier.

And the nightmare begins.

It was all a domino effect.  With the new cashier in place, the kitchen is no longer supplying enough burgers to sell.  The only way to create more burgers is to go to the feedlot and to create more meat patties. To create more meat patties, I had to increase the barn size in the farm, and with more cows, I had to harvest more pasture for the cows.  I almost bankrupted the company with all the additions, but I survived.
The storm started again within months; I was getting fines from the government, upset employees won't work, environmentalist protesting...etc and nobody is eating at the restaurant anymore due to all the negative news.  I had to make a choice, to advertise using a fundraiser, or slow down all productions, lay off employees, and stop harvesting pastures to save cost.  And finally, the decision was made, I decided to spend thousands of dollars on a MacDonald's - Disney foundation for kids, and it was a very expensive decision, but it worked and customers started coming back again.  Unfortunately, it still weren't enough to recover from the hit, and the company declared bankruptcy after 16 years in business.

Although this is a game, but it actually reflected a lot of problem on running a business.  It is always easy to manage a small business, but in time, the demand will grow and with the rise of demand comes a shortage of supplies.  In history, we learn that a quick growing business without a solid foundation are very likely to fall and unable to recover.  If I can go back in time in my game, I will probably ignore the line ups and try to build a more solid financial background before expending again.  Well created game!!

Production Possibilities Curve

Production Possibilities Curve graphs is graphical representation of the various combinations of maximum output that can be produced from the available resources and technology.  In the example, the society only produces two products; wheat and car.  To produce a high amount of cars, you will only have enough resource to produce low amount of wheat, visa versa, to produce high amount of wheat, a low production of cars will be the result in the opposite end.  Production possibilities graph help us define and calculate which production level would maximize outcome and profit, and it helps us identify the gain and loses of increasing or decreasing a certain production line.

An example of how scarcity and choices that has affected my life would be deciding on whether to travel during the summer holidays, or take summer courses.  The choices I made will affect many criteria, including: loss of income (on my day job), time (travelling will delay my expected graduation date furthermore), and the amount of money necessary to spend on a vacation.  With the help of the production possibilities curve, we better understand how to make these decisions.  For example, can I take a shorter vacation instead so I can still complete summer courses and not miss as much work? What is the maximum time (days) I can go on this small trip before it affects my school and work? With the graph, I can maximize and plan my schedule with the available resources, so I can get the most out of what is available to me.

There were quite a few significant opportunity cost I experienced by returning to school.  There are actually significant effects on both side of the equation.  By returning to school, I no longer have time to play soccer because of class conflicts, I can no longer work a second job, school is very expensive and I spend less time on Video games and hanging out with my friends. However, with the loss of these luxury items, I’ve earned knowledge through school, a diploma, better career opportunities, and I will be able to support and provide a better living for my family.  It might be a challenge now, but it will benefit me in a long run.  Like the book suggest, there is no free lunch, and every decision I make will affect not only me, but everyone around me for a very long time.

Micro vs. Macro!!

Microeconomics to me is when you receive your first pay cheque and have a hard time deciding where to spend it.  Macroeconomics is when the parents have to set the rules in the house, delegate house work, utilizing the money they bring home properly, and make smart investment decisions!!