…producing cars, thinking costs.

As we start to delve into the theories of costs and supply, use your ‘economics toolkit’ to think about what’s going on in ‘real world’ examples.

Have a look at the business of car production in the developed world.

VW cutting costs in the US

Porsche cutting costs in Germany

Think about which types of costs are being mentioned and the likely impact upon the relevant market supply curve. This will all come in handy when thinking about bringing supply and demand together…which tends to be a fave focus for an exam question in the May/June assessment period.

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What’s the PED of Petrol then?

You’ve seen that the demand curve for petrol is inelastic (steeply sloping) – it’s an economist’s fave example for demonstrating this.  Whilst there are many issues attached to this market, one question that is generally left hanging is:  Just how inelastic is the demand for petrol?

Researchers at the University of California, Berkeley, have conducted a study which suggests that for some products its worth thinking about short- and long-run demand and their associated elasticities.  And whether and why there might be a difference.  Petrol just so happens to be a good example.   In the long run, the demand for petrol averages out at -0.31.  A steeply sloping demand curve, yes?  But in the short-run the estimate is -0.09.  Very nearly perfectly inelastic!

Can you think why?

Buffett on Elasticity…

If you aren’t sure about the price elasticity of demand, check this out to confirm that it’s a powerful concept in the ‘real’ world of business.

Billionaire financier Warren Buffett has identified the strategic importance of having a product on which you can increase the price ‘without losing business to a competitor’.  The example used is the US horseracing newspaper the Daily Racing Form (in the article as the ‘Daily Racing Forum’) which is still the ‘go-to’ source for racing form in the US (now online at www.drf.com).  Back in the day (the 1970s) the owner of the paper recognised its essential, necessity-like (or habit forming) nature and felt he could increase its price without fear of losing revenue.

Why?  Well, after a few sessions of GBC you should now know!  It’s all to do with having an inelastic demand for your product.  And, if you have a product which doesn’t face an inelastic demand, what could you do about the situation?  Well, that’s where advertising (as well as other business-related activities) can come in, to help make the demand curve for your product just that bit steeper.  Or, more inelastic.

Learning GBC via YouTube

Really?

If you haven’t had a look yet, go to jodiecongirl’s blogsite and linked YouTube videos for ‘snippets’ that might really help you pick up the fundamentals for GBC.

The link is to Jodi’s ‘Microeconomics 101’ videos. There are really helpful ones on all aspects of demand and supply theory.

See what you think? Let me know via comments or email…

A demanding start…

Making sense of GBC makes a lot of demands on you. Keeping up with the lectures and linked tutorials as well as the relevant reading is tough.

So why add to the burden with a blog? Well, some of you have scheduling issues – with your lecture after your tuitorial. And, for most of you, ‘real life’ will intervene – buses late, family and relationship events etc. So, to try to bridge the gap…and to connect the module material to up-to-date happenings, literature and other sources of info…this blog is for you!

Well, really it’s for us. Although I’ll try to keep things as relevant and timely as possible, if you come across interesting stuff then just send me a link by email and I’ll get your contributions up here too.

Oh yes, if anyone wants to get more involved with economics at UWE…just get in touch. I’m interested in exploring what we can do to make thus journey better, more relevant and useful for you.

Thanks…