assignment4finance: Econ 1101 Microeconomics 1

Econ 1101 Microeconomics 1

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Yesenia B Hernandez C
Dr. Ishita Edwards
Microeconomics
3 November 2014

Microeconomics Analytical Essay

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The fact that economics is everywhere was not evident to me prior to this assignment. I had previously believed that the examples presented in class and in my book were extreme in order to present concept that was being discussed. However, this misconception has now been corrected and I now see how many concepts are constantly used in our daily lives. In the examples below I will demonstrate the daily use of concepts learned in class by analyzing various articles from the Wall Street Journal. “Sony Warns of Deeper Woes” by Takashi Mochizuki and Eric Pfanner, Wall Street Journal, Page B1 and B6, September 18, 2014. This article is about the choices that Sony CEO Kazuo Hirai has had to make this year in hopes of turning around its downward pattern. According to the article Sony will have its biggest downgrade to its earnings outlook by writing down the book value of its mobile communications unit which is expected to post an annual loss of 2.15 Billion dollars. Additionally, the company plans to cut roughly 15% of the unit’s total workforce which is about 1,000 jobs in the mobile business. Many analysts speculate that this could be a precursor to a sale, but this statement cannot be confirmed. Executives stated that the company was struggling to compete with smart phone brands from china like Apple and Samsung Electronics Co. that sell their products for a fraction of the price. Additionally, unlike Apple and Samsung Electronics Co. who have their phones available with the two major U.S network operators like AT&T and Verizon, Sony only offers their phones with T-Mobile and Sprint. For this reason, Sony expects to only sell 43 million smart phones, 7 million less than what they had previously predicted. This article provides great examples of choices that the producer has to make in order to reduce the company’s cost due to demand, supply, scarcity, and various other key factors that affect a company. Mochizuki and Pfanner state that due to the price of Apple and Samsung products, Sony has experienced a left shift in their demand curve. Because Apple and Samsung create substitute products at a lower price in China it has caused for a decrease in the demand for Japanese Sony smartphones. Additionally, Sony products availability and quality of resources is far less than that of its competitors which contributes to the decrease in supply. According to the article, Sony expected to sell 50 million smart phones but now they have predicted that only 43 million will sell. Assuming that the quantity supplied is 50 million smart phones and the quantity demanded is 43 million, Sony will experience a surplus of 7 million smartphone; the surplus will then cause a decrease in the price for Sony smartphones. The article also states that Sony plans to get rid of about 1,000 jobs in the mobile business which will further decrease or cause a left shift in the supply curve. “Robots Work Their Way into Small Factories” by Timothy Aeppel, Wall Street Journal, Page B1 and B7, September 18, 2014.

Timothy Aeppel writes that a new breed of flexible machines is now more affordable to small companies. According to Aeppel, machines used to be extremely expensive that only corporations or large companies could afford them, additionally they were extremely big and needed large spaces and could only perform one task. This new breed of robots called collaborative machines which are designed to work alongside people in close settings is changing how some small companies now operate. The collaborative machines are priced as low as $20,000, are much smaller, mobile, and can be programmed to do different tasks. Adding these robots has also decreased safety hazards as machines are more precise. Although, the positive outcomes for a company are great when technology is added, many managers and owners worry that workers will view these robots as competitors for jobs and fight their installation. In Panek Precision Inc. 20 machines have been added and have replaced machine operators that earn about $16.50 an hour. Also, robots do not need health insurance, lunch breaks, vacations and other expenses that human workers require. According to the article the demand and supply of robots in company has increased dramatically in recent years, causing an increase in supply and productivity in the companies that are adopting this kind of technology.

Technology will shift the supply curve of these companies to the right due to its ability to produce items at a faster pace and more accurately. The cost of production will decrease dramatically because many expenses will be able to be avoided. Assuming that the company has 20 workers, and each worker is being paid $16.50 an hour and works 40 hours a week the total dollar amount of wages would add to $633,600 a year. The lower labor costs that a machine will create for a company can lead to higher profitability which could lead up to expansion. The company would in the long run increase their profits by shifting their supply curve to the right and reducing costs. If more items are available the price of the item would decrease and the demand would increase. The cost benefit principle is evident because small companies are acting and making choices because the extra befits are greater than the costs.

“Apple Tarnished by Software Glitch” by Daisuke Wakabayashi, Wall Street Journal, Page B1, September 25, 2014.
Apple released their brand new iPhone 6, iPhone 6 Plus, and new iOS 8 which has created negative publicity because of the various issues that the customers are encountering. According to the article many customers have complained that their iPhone 6 plus camera is bending out of shape when some pressure is exerted. The software also had its set of issues, such as disrupting the phone’s ability to make calls and disable the Touch ID fingerprint. The negative publicity is affecting Apple at a time when it’s hoping to sell record number of phones. The negative publicity contrasts with largely favorable reviews for its new iPhones and Apple’s announcement of strong initial sales. Apple immediately addressed its customers and stated that they were investigating all reports and would resolve the issue. The article also goes over the previous negative publicity in the past and argues that all software’s have its glitches in the beginning and states that apple consumers remain loyal and favorable to the company. Consumers taste and preferences as well as publicity can increase or decrease the demand of a product. Negative publicity is slightly shifting the demand of iPhones to the left, yet the shift is not significant enough as many consumers view the company favorably. According to the article many of the issues that Apple is having are normal in the first few weeks of launching the product. The software issue was resolved promptly and the costomers remained loyal to Apple and its products. The elasticity of demand is small since people continue to purchase Apple products despite high prices even when purchasing the item with a contact. “Ford Slashes Profit Targets for Year” by Mike Ramsey and John D. Stoll, Wall Street Journal, Page B1, September 30, 2014.

Ford Motor Co. CEO Mark Fields reduced the auto marker's full year profit outlook on rising troubles in emerging auto markets and cost from quality troubles and U.S recalls. Mark Fields recently took his position in the company in July 2014 and has stated that they have created a realistic and proactive expectation of sales. According to the article the largest factors for the deduction in the auto marker's full year profit is a $1 billion cost for warranty and recall costs, a $300 million hit from declines in Russia, and a loss in South America that is $900 million larger than forecast. The company expects Europe to lose $1.2 Billion on a pretax basis in 2014 and 2015. Also, Ford is suffering from quality problems and has recalled 3.9 million U.S vehicles so far this year. Despite the losses expected CEO Mark Fields remains positive that this is temporary and has set targets for the end of the decade across all of its businesses, including a nearly 50% growth in global deliveries and double digits margins for its Lincoln luxury brand. Ford promised double digit margins from the Lincoln brand in 2020 and volumes over 300,000, up from negligible margins and 100,000 units today. The company has also mentioned that they are investing 2.5 billion in the brand and plan to add two new vehicles by the end of the decade. The article states that Ford told investors that due to higher costs to meet fuel economy standards globally, its profit margins would be lower than it had previously hoped in 2020. According to Ford the market demand for fuel economy is not matching the regulatory demand for fuel economy.

As previously stated in the paragraph above the demand for fuel economy cars is less than the regulatory fuel economy, additionally the cost of production for a fuel economic car is far greater than regulatory economic autos. According to the article Ford will shift its supply curve to the right so that by 2020 the Lincoln brand will be producing 300,000 units, 200,000 more than they are producing today. This excess supply will theoretically lower the prices of this brand of automobiles cetirus peribus. However, currently the demand curve has shifted to the left as quality problems and recalls have risen. Another factor that may cause a shift of supply to shift to the left is the expected loss of $1.2 billion on a pretax basis for 2014 and 2015. “GM CEO Looks to Switch Gears, Set Strategy” By Joseph B White, Wall Street Journal, Page B1 & B6, September 30, 2014.

The article states that GM CEO Mary Barra has been facing various issues in her first nine months as Chief Executive Officer. The company lost nearly 3% of shares and their stocks has fallen about 17% since CEO Mary Barra has taken office. According to the article GM has recalled 29 million vehicles for various safety problems and the company has booked 2.5 billion dollars in recall related costs. The scandal over decade-old failures in the company’s handling of deadly ignition switch defects has also affected the company in a negative manner. Analysts predict that the company could face as much as 2 billion in additional fines to resolve the ignition switch defects which is still under investigation. Another major issue that is causing for the company’s loss is that GM pays more than its rivals for the materials and technology it buys for its vehicles because of its own bad habits. The article stated that GM has been basing part orders on unrealistic high sales forecasts that can saddle suppliers with costs when demand falls short. Such high inventories undermined Cadillac’s efforts to defend its efforts to charge higher prices and boost resale values.

This article provides a great example of surplus that a company has created because of bad habits and unrealistic high sales forecasts. GM unfortunately has to lower the prices due to surplus that they created thus causing for their profits to decrease. The various issues that this company is facing are causing a left shift in the demand curve as well as a left shift in the supply curve after the surplus crisis. The demand curve is shifting to the left because there are various safety concerns with certain GM auto motives. “Supervalu Hit With Second Hacking” by Annie Gasparro, Wall Street Journal, Page B6, September 30, 2014.

In recent years huge corporations like Target, Home Depot, P.F. Chang's China Bistro, Neiman Marcus Group and Supervalu have been hacked causing for millions of customers credit cards and personal information to get stolen. The most recent hacking occurred at Supervalu which is currently under investigation. According to the article many companies are now purchasing software in order to prevent this recurring issue. Many customers also fear that their information has been stolen and could be used for malicious purposes. Supervalu has stated that as a precaution they will offer 12 months of free consumer identity protection services through Allclear ID to customers whose information may have been compromised in the hacking incidents. Customers feel safer with this option in place, yet this will cost the company hundreds or thousands of dollars.

This article states that hacking has made companies fearful and has shifted the demand for software to the right. The elasticity of demand for software to combat hacking is extremely small because companies are in constant need of hacking software to prevent these issues. Currently a higher percentage of American's have opted to use credit cards much more than cash which has also made them more vulnerable to get their information stolen. For this reason and after various hacking issues companies are now taking precautions. The opportunity cost of buying the software is less than the loss of not having these systems in place.

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Monday 12 January 2015

Econ 1101 Microeconomics 1

Econ 1101 Microeconomics 1

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