Demand and Supply

On a winter day, you won't see many stalls selling cold drinks.
Instead, you'll see stalls selling cups and cups of hot chocolate and hot coffee. Yummy!

Well.. why so?
The stall owners know that people's demand for hot chocolate and coffee is high during winter, compared to their demand for cold drinks. They're just meeting people's demands to get the most out of the profit they can make.
In short, the market's demand for certain products determines how much the suppliers produce.

The definition of demand is, "the quantity of a certain product that consumers are willing to buy at a given price".
Whereas the definition of supply is, "the quantity of a certain product that suppliers will make available to the market at a particular price".
There are two simple rules to demand and supply.

The higher the price of a product, the lower the demand will be.
When we plot a graph, it'll look like this:

This is called the demand curve.

Oppositely, the higher the price of a product, the higher the supply will be.
When we plot a graph, we'll get this:

And this is the supply curve.

When we combine both the curves, we'll get...

THE DEMAND AND SUPPLY CURVE!!
Since those who demand and those who supply have opposite theories, how do they decide which price to set for products?
This is where it leads us to the term equilibrium price.
Equilibrium price is where the demand and supply curves meet. There is no surplus nor shortage.
"It is a state of balance between market demand and supply," Geoff Riley defines.

Since the equilibrium price is affected by the changes in demand and supply, what affects demand and supply?
The answer will be revealed in the next blog post.
Stay tuned!

Bibliography:

Demand, Supply, and Market Equilibrium. 22 December 2012 <http://www.prenhall.com/behindthebook/0132447029/pdf/O'Sullivan_CH03.pdf>.

Riley, Geoff. Finding an equilibrium price. 23 September 2012. 22 December 2012 <http://www.tutor2u.net/economics/revision-notes/as-markets-equilibrium-price.html>.

The Times 100: Business Case Studies. Marketing Theory. 22 December 2012 <http://businesscasestudies.co.uk/business-theory/marketing/demand-and-supply.html#axzz2E7WziFyM>.

Production (Part 1)

Our topic for the day would be: Production.

WHAT?
Production is the process of converting raw materials into finished products.

WHY?
Production is carried out in order to produce goods and services that cater to our needs.

HOW?
Production can be done in different ways.
The three most common ones are: Job production, Batch production and Flow production.

Job Production 
Job production is done when producing one single piece of product at a time. Each piece of product is specially designed to meet one particular customer's needs and specifications. In many cases, the quality of the product is higher compared to products that are mass produced.

Example: Wedding gown.

Usually, wedding gowns are specially designed for brides by fashion designers. The bride will give certain specifications of her desired wedding gown to the designer, the designer will then design the gown specially for the bride.

ADVANTAGES:
-Product is according to customers' specifications.
-There is no finished goods stock.
-Workers are motivated as they carry out a variety of tasks.

DISADVANTAGES:
-It is expensive because it requires multipurpose machinery and skilled versatile workers.
-Production cost for each unit is high due to short production runs.

Batch Production
The name says it all. Batch production is the manufacture of different versions of the same basic product in batches. There is a repetition in the production.

Example: Tea.

Teas of different flavours can be produced using batch production, as the steps for the first half of the process is basically the same. The only different step is when the flavouring is added. Using batch production, it saves time and cost for the factory.

ADVANTAGES:
-The same machinery are used on different settings to produce a wide range of similar products.
-A variety of tasks are carried out in the production, resulting in job satisfaction for workers.

DISADVANTAGES:
-Production cost for each unit is high because of the short production runs.
-Multipurpose machinery and skilled versatile workers are still needed, which results in high costs.
-Resources are needed for changeover between batches.
-Warehouse space is needed to store raw materials and finished goods.

Flow Production
Flow production is a mass production. Products are continuously produced, flowing from one stage to another without stopping until completion. Workers carry out repetitive tasks, aiming to produce products as quickly as possible without the loss of quality.

Example: Coca-Cola.

Coca-Cola is an example of flow production. The production line doesn't stop from the beginning till the end of the production.

ADVANTAGES:
-Economies of scale is easily achieved due to production in large quantities of standardised products.
-Low level of "work in progress".
-Workers with low level of skills are needed.
-Low production cost for each piece of product results in low prices for the customers.

DISADVANTAGES:
-Less job satisfaction for the workers due to boredom by doing repetitive tasks.
-Large stock of raw materials is needed to prevent stockout.
-Continuity of demand is required. Constant overstocking of finished goods will happen if the demand of products decreases.
-Cost of setting up the production line is very high.

Task: Flow Diagram
*Click on the image to enlarge it.*

The flow diagram that I've created is a summary of what I've written in this entire blog post.
Have fun reading! :)

Bibliography:
Cuizon, Gwendolyn. What is Production. 24 February 2009. 13 December 2012 <http://suite101.com/article/what-is-production-a96998>.

dineshbakshi.com. Methods of Production. 14 December 2012 <http://www.dineshbakshi.com/as-a-level-business-studies/operations-management/104-revision-notes/1244-operations-planning>.

tutor2u. Methods of production. 14 December 2012 <http://www.tutor2u.net/business/production/methods-of-production.htm>.

Production and Consumption

Production and consumption is essential in every country.

However, do you know who controls this system?

Who decides what to produce? How do they decide? 

As an opener, we are going to explore the system of production and consumption.

There are different types of economic systems, which includes traditional economy, command economy, market economy and mixed economy.

A traditional economy is an economic system whereby all economic decisions are based on beliefs and traditions. They follow exactly what their ancestors did before. Besides, they trade without using money, they just exchange goods. One example would be villages in Africa and South America. 

A command economy is when the government makes all economic decisions and owns most of the properties. The governmental planning groups determine the prices of the goods produced, the wages of workers, etc.  This system is usually used by countries with communist governments, such as North Korea and Cuba.

A market economy is an economic system in which economic decisions are affected by the changes in prices that occur as buyers and sellers interact in the marketplace. Most of the resources are owned by private citizens. In this case, economic decisions are based on free enterprise, which is the competition between different companies. There is no pure market economies in the world yet, but US is close.

Lastly, a mixed economy is a combination of command economy and market economy. This means most businesses own the resources, they determine what and how to produce, but the government regulates certain industries. 

Today, many democratic countries such as UK, Canada and Mexico fall under the category of mixed economy, as there is no pure command economy or market economy systems being used today. 

When a country is using a mixed economy system, they are often closer to either one of command economy or market economy, as there is no pure command economy or market economy.

Seeing it in a global context, the world operates in a mixed economy system which is closer to market economy. 

In such an economic system, production and consumption is controlled by the market most of the time. 

"The 'invisible hand' of supply-and-demand market forces defines what is produced, in what quantity, and at what price," says Economy Watch.

The market itself determines the prices of goods and services, and all participant can access to this information. Businesses can decide what to produce, how to produce and how much to produce, while consumers can decide what they want to purchase and at what price. 

And, the big word for it is DEMAND AND SUPPLY.

Bibliography: 

Economy Watch. Market Economy. 14 October 2010. 4 December 2012 <http://www.economywatch.com/market-economy/>.

Harrisons. Economic Systems Notes. 1 March 2010. 4 December 2012 <http://www.slideshare.net/mrsharrisonss/economic-systems-notes-3308088#btnNext>.