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# Economy and how it affects my business selling tables

Extracts from this document...

Introduction

ï»¿| Page ________________ SUPPLY AND DEMAND. Scenario. Imagine you are the owner of a business manufacturing and selling a particular type of table. The average variable costs of producing each table are £180 while the fixed costs are £12,000. Also, you have carried out some market research and found that the total number of customers wishing to buy the table varies with changes in price of the table below: (Q1) Product: table Price (£) Quantity Demanded Total Revenue 100 770 77,000 140 680 95,200 180 610 109,800 220 550 121,000 260 500 130,000 300 460 138,000 340 400 136,000 380 320 121,600 (Q2) £300 would yield the greatest revenue at a quantity of 460 giving total revenue of 138,000. (Q3) Draw the demand curve for the table. Please see graph attached. Now, assume you are willing to supply the following number of tables at different prices: Price. Quantity supplied. 100 220 140 260 180 320 220 400 260 500 300 640 340 880 380 1400 (Q4) Draw a supply curve for the tables on the same diagram as the demand curve for Q3. Please see the graph attached. (Q5) On the supply/ demand diagram find the equilibrium quantities sold/ bought. The equilibrium price (E. Price) I found was 260 and the equilibrium quantities sold (E. Quantity) was 500. This was found where the supply curve and demand curve intercepted and met each other. (Q6) Would you make a loss or profit by selling the equilibrium quantity and charging the equilibrium price? Total costs= average variable costs x quantity + fixed costs 180 x 500 + 12,000= 102,000 Total Revenue= Price x Quantity 260 x 500= 130,000 Profit/ Loss= Total Revenue – Total costs 130,000 – 102,000= 28,000 (profit) (Q7) Price (£) Quantity Demanded 100 950 140 860 180 790 220 730 260 680 300 E. PRICE 640 E. QUANTITY 340 580 380 500 The new equilibrium price is £300 The new equilibrium quantity is 640. ...read more.

Middle

When credit is tight, interest rates are high; the cost of financing goes up. For my business I would prefer that costs are relatively low and that there is good profit so that I can enhance my business and therefore I don?t have to cover my losses with my profits. Without this there are very little incentives to improve and even manage my business smoothly. Contractionary monetary policy can increase unemployment due to the decline in production and an increase in interest rates. This will make the growth of my business slow down as I have to hire less staff. I may have to take a loan to improve my business and if interest rates are high this could undermine my business goals and spoil my business strategy to improve and expand my business. On the other hand if interest rates were low and loans were easier to obtain this will have been effective for my business to thrive. The reason being that people will have more money therefore consumer confidence will be high, which will increase my sales and boost my revenue. Also, due to the increase of the revenue I could employ more staff to keep up with the high demand of my tables. If the value of the currency was strong, this will allow me to purchase raw materials, products and complimentary goods relatively cheaper. Also I would pay less for what I purchase and this will assist me in making more profit because the total costs will decrease and my sales revenue will increase. Low tax rates will boost my spending power and my ability to supply and keep up with demand because this will also increase as consumers have more money to spend. The reduction of tax rates will help spur the economy in the long term by improving the stimulation to work, produce and save and by reducing the hardship that is connected with higher tax rates. ...read more.

Conclusion

This could be because the tax and interest rates decreased, giving employers more flexibility and the will to take on more staff. At the end of 2003 the unemployment was at its lowest in 3 years and the unemployment rate gradually stayed stable over the years of 2004 and 2005, until the last three months of 2005, where it started to increase through to 2006. In 2006 the highest rate of unemployment was 5.5% and this again slightly started to decrease during the year 2007. It stayed stable for the first four months in 2008, but then the unemployment rate started to go up and never went down, ending in 6.5%, the highest in eight years. Over the years of 2009 and 2010 it consistently rose, so the difference of 10 years showed an increase of 2.2% (January 2000- January 2010). The employment rate from the end of 2007 to 2010 shows only an increase. This was because there was a credit crunch and inflation started to also increase, causing a recession. Other factors that led to a big increase in unemployment were interest rates and due to high interest rates to combat inflation, there was an increase in the cost of doing business and an increase in the cost of financing the government deficits. This may have led to more unemployment. Because of the increase of unemployment there will be a ripple effect on my business as less people have money to spend and factors such as high inflation and tax will cripple people?s and my business? spending power. This economic hardship will create a barrier for my business to expand and progress. I may have to make some of my employees redundant to cut my wage bill because of money being less available to employ staff, due to the increase in tax and costs of products and raw materials. Unemployment can negatively affect the UK?s economy and cause it to decline and therefore impact the power of the Pound, causing it lose its strength against other major currencies such as the Dollar and the Euro. ...read more.

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