Wednesday, September 14, 2011

Another Economics Lesson

This economics business is rather interesting to me, I must say. The thought has crossed my mind a time or two if I should switch majors (again) and pursue that route. Then I realize the hassle and think better of it. But who knows. Anyway. The lesson for today....
Supply and Demand. It is rather interesting to me how supply and demand works. On the basic Marshallian Theory with which the country runs, the price and output of a product is based on both supply and demand. So when a company launches a product and set the price, that price will either go up or down based on the demand. A good example is sports events. When a team is doing great, more people are willing to pay money to see the team play so prices of tickets will go up. If the team sucks it up consistantly, then the price of tickets will go down.
There is also the case of complementing companies like Pepsi and Coke. They are pretty even kill, so if Pepsi raises their price, the demand for Coke will raise. Because of this, the prices are generally the same or pretty comparable because neither company wants to lose their market to the competitor.
What got me thinking about this was the big Target launching Missoni debacle. My guess would be that Target was wanting to increase its profit, so they partnered up with Missoni to offer this generally VERY expensive designer line at a much lower price which in turn increases profit. However...they weren't prepared for the demand of the product. There was such a demand that their website got shut down within 3 hours and was out of service for much of the day. And the stock was completely sold out. Could they have prepared for that? Probably least I can't think of a way. And maybe thats what they were going for but wow. Talk about VERY unhappy people.

Anyway...very interesting how that works. So when you see something go on sale or lower prices, you can almost always bet that the company assumed the demand would be higher than it was. How marketing comes into play is very interesting too...but thats for another.

Ok class is out folks...hope you learned something good!

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