Business Situation 1
1. Summarize the factors which you believe would cause an explosive demand for the new tea by using the economic factors that drive the demand for any product. According to Hubbard and O’Brien (2013) the market demand is the demand by all consumers of a given good or service (p. 76). Variables that drive market demand include: price, income, prices of related goods, tastes, population and demographics, and expected future prices. The law of demand is, holding everything else constant, the inverse relationship between the price of a product/service and the quantity demanded. Income is the amount of money consumers are willing to spend to buy a product. For some consumers, tea will be a normal good, for others an inferior good, and others neither. Prices of related goods can affect consumer demand. Tea may be viewed by some consumers as a substitute for coffee, soft drinks, or bottled water. Pricing of all beverages will determine demand curves and ultimately success of the product. Tastes or consumer preferences can be influenced by persuasive advertising campaigns. Trends, such as the surge of tea into the market, may have an increase in demand for the product; thus a demand curve shifts to the right. Population and demographics also influence the consumer demand. The number of consumers in the market place will influence product demand. Factors such as age, race, gender, and geographic location all factor into product demand. Last, forecasting of projected future pricing of products influences product demand. Executives of Global Foods, Inc. need decide whether it is in their best interest to introduce a tea line to their already existing beverage product line. The trade-offs of a tea line and opportunity costs need to be weighed. When deciding whether to increase the beverage line to include tea, Global Foods, Inc. must reflect on how consumers make choices: people are rational, people respond to economic incentives, and...
References: Hubbard, R. G. & O’Brien, A.P. (2013). Essentials of economics. (3rd ed.). Boston, MA: Pearson Addison Wesley.
Keat, P. & Young, P. K. (2009) Supply and Demand. (6th ed.). Managerial Economics. (pp. 45- 77). Prentice Hall.
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