Apple facing shortage of Supply for iPhone 5

‘Apple sells over 5 million iPhone 5, supply constraints loom’

Analysis 1

Introduction

Desires are unlimited but not all desires can be satisfied. Scarcity is faced by all. This article looks at a high demand over a good and its influence on the amount being supplied. The quantity demanded for iphone 5 was so high that it ran out of supplies. Apple is not supplying enough iphone to meet its demand and since iphone is a highly valued good worldwide, their limitation affects the demands worldwide. Largest factory that assembles parts of Apple closed down, Apple lacks labor and Apple’s key suppliers for screens are struggling with high cost and debt. Furthermore, shortage of iphone supplies also influence people’s choice of Smartphone especially considering apple’s stiff competition with Samsung Electronics.

Referring to the article, it’s announced that over 5 million iphone were sold in three days since it was released to the market. However the company was not able to meet demand since its initial supply was insufficient. What I know based on a factual account is that there were 8 million demands for the Smarphone when it hit the stores but only 5 million was produced.  This clearly demonstrates that there was a shortage of 3 million iPhones.

The graph shows the demand curve shifting rightward showing the increase in quantity demanded for iphone 5. The new quantity demanded was 8 million while the quantity supplied was only 5 million and since the quantity demanded exceeded the quantity supplied of iphone 5, there was a shortage of 3 million iphones. Preference is the reason for the increase in the quantity demanded for the iPhone 5.  Consumer’s placed high value on this particular product therefore there is a strong demand. Many positive phrases that indicate strong demand for iPhone 5 were pointed out in the article which includes, ‘most valuable company, sales could have been much higher, white hot expectation, topped sales of iphone 4s, expected to sell 46.5 million in December, accounts for half of its annual revenues and sold 5 million in three days. This shows that the fans of iphone are so incredible that as soon as the product becomes available, consumers will run to catch it.

                However, even though Apple is considered to be the world’s most valued company, its limitations can have significant effects. Quite a few negative phrases in terms of iphone’s supply were also pointed out in the article which includes, ‘Struggle to meet demand; disappointment, limitation, fallen behind schedule, stiff competition and would not be available’. This indicates that expectations were not met and many consumers were unsatisfied. Looking at how Samsung Electronics Co Ltd, Apple’s strong rival has already topped the sales of Smartphone,  limitation of iPhone 5 during this particular period can have a significant impact on Apple since consumers can substitute to Samsung Smartphone. However, it can be argued in terms of preference. Since iPhone and Samsung have its unique characteristics, consumers that prefer iPhone are willing to wait for the iPhone and not substitute for Samsung. Taking both the information into consideration, it can be agreed that demand for iPhone 5 is relatively elastic.

Apple’s insufficient supply occurred as a result of these issues. First of all, Sharp Corp, Apples main key supplier that supplies screen has been facing trouble with high costs and raising funds to pay debt and therefore the new iPhone’s display is not on schedule.  The Japanese company is finding it hard to reduce screen defects. Secondly, Foxconn Technology, Apple’s largest contract manufacturer that assembles and make parts for Apple’s iPhone 5 closed a factory in the northern China. This shows that Apple lack suppliers and labors to supply the new iPhone.  

The iPhone Smartphone production is slowing down due to these issues and this causes the decrease in the quantity supplied of iPhone 5. Looking at figure 1, the supply curve has shifted towards the left indicating the decrease in the quantity of iPhone supplied.  For Sharp Corp to overcome the issue of high cost and to pay off debts Apple can charge higher for the iphone and that can maximize profit. Demands for iPhone 5 are already very high a little price increase won’t make a very big difference.  The supply is perfectly inelastic as indicated in figure 2. This is because Apple in shortage of supply and they need the products at any cost in order to satisfy millions of demands.

Figure  1

Figure 2

 Lack of labor decreases output. Looking at the graph shown below, to shift from B to C or to increase the number of iPhone 5 in the short run, Apple must increase the amount of labor for Foxconn.  As what I have heard, they are already planning to increase labor and machinery but I however believe that it is not an easy prospect to ramp up and build another million iPhones. It will take at least sometime for millions of iPhone to reach stores.

It can be agreed that this shortage may not be a long term problem and that Apple will get special treatment from its suppliers and Apple is making efforts to meet the huge demand for the iPhone 5 but they will however have to do a very good job on that.  

Conclusion

To sum it up, Apple is in shortage iPhone 5 in which 3 million demands were not met.  Apple is the most valued company in the world so the inefficient supply of iPhone affects demands worldwide. Considering how Samsung now leads the sales of Smartphones, its limitation during a particular period can influence consumers into substituting iPhone for Samsung. However, the demands for Apple were so strong that 5 million were sold in 3 days so that proves that as soon as iPhone supplies becomes available, people will line up for it. Limitations of the new iPhone were due screen defects, high cost and lack of people to assemble the phone. Apple is making efforts to meet huge demand for iPhone 5 but however, it’s not an easy prospect to ramp up and build another million iPhones since demands of Apple are very strong. Facing issues to do with technology and lack of labor will surely slow down production.  

                           

http://www.reuters.com/article/2012/09/24/us-apple-iphone-idUSBRE88N0HL20120924

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Decline in Profit due to high cost

‘BMW profits hit by higher cost’

Analysis 2

Introduction

If a company is highly valued and it achieves one of the highest revenues, does it always mean that the company is doing well? This article looks at BMW, a company that produces luxury goods that is highly valued by demands around the world and thus sales are high. However, even though the company is doing well in terms of satisfying demands and achieving high revenues how come its profits are falling? Referring to the article, BMW Company lists the factors that have been causing the decline in profits which includes, increased staff costs, higher spending on research and development and stiff competition. The quantity of BMW sold also varies in Europe, US and Asia and this directs us towards countries economic health.  

            The main aim for firms is to make profits. However, BMW has performed to the extent where it has attained consumers’ loyalty, recognition and value and the Company’s aim is not just in making profits but being the Company that achieves one of the highest profits. According to the article net profit dropped 28% compared to its previous year despite revenue rising up to 7% to 19.2bn Euros. With the given figures of 2012, it can be estimated that the previous year’s revenue could be about 17.9 Euros. 28% drop in net profit shows that this year’s total cost is much higher than the previous years.

            Stiff competition was one of the reasons BMW’s profits declined. Based on a factual account, BMW beats Mercedes Benz and Toyota in increasing sales of its luxury models in US in the fifth month of 2011. This evidence show that BMW’s revenues were higher than its competitors a year earlier and that might have lead them to producing higher quality products for the coming year to remain at that level and thus the Company inserted much more cost into producing higher standard good and that led to a drop in profit.

 .BMW increasing the price of goods to overcome high cost can however lead to significant impact. They might not lead in sales since the consumers may substitute to BMW’s competitor’s goods such as Mercedes Benz and Lexus which also has great brand loyalty. Based on a factual account, Mercedes U.S. sales rose 7% and extended its lead over BMW in US in September 2012. High cost of production led to BMW charging higher price and even though BMW achieved higher sales compared to its previous year it was defeated by Mercedes Benz. This could indicate that BMW revenues were higher than the previous year because of the higher price but Mercedes achieved more sales in terms of quantity because this luxurious good had a slightly fairer price. However, it can be argued that preference on the type of cars also influences demand because each the car brands has its unique characteristics and if consumers have had good experience with a particular car brand, they would prefer buying the same brand rather than substituting to another.  This shows that the demand for BMW is relatively elastic.

Increased staff cost and higher spending on research and development are the other factors that led to a fall in BMW’s profits fell. Staff cost rose 5% to 102,007. I believe that BMW recruited more high skilled workers and engineers to produce higher quality goods and that means paying higher and more salary and increasing expenditure on development and new technologies. Referring to the graph below, BMW still generates profit because its total revenue still exceeds the total cost but in this case, since its total cost is increasing, the profit is not at its maximum level (indicated by the arrow), but the points would be above the arrow showing the decline in profit because the total cost is increasing.

                        

Looking in terms of country’s economy, was it a good idea for BMW to increase their cost of production in order to produce higher quality products and increase its price? The first half of the year, sales in Europe were flat. They sold 437,338 units. On the other hand, sales in US boosted by 10% and in Asia by 25%. The company was warned the previous year that Europe’s economic and debt crisis could affect sales of cars but the company overlooked this issue and continued with their development plan.  The flat sales in Europe this year indicates that the company was affected by the crisis. Since most consumers in Europe could not afford to purchase the good at the price BMW was charging, it could be argued that BMW should not have carried on with their development plan and increase price of goods but however, BMW’s revenues were higher than the previous year which means that its development plan did benefit greatly from US and Asia. So BMW succeeded in terms of revenues but to overcome the drop in profit, they could charge higher but this could decrease demands and considering the economic crisis in Europe, they shouldn’t take further risk. A good suggestion for BMW to boost profit would be to lower their cost of production to some extent. This would still increase sales since BMW is already a highly valued company without them having to increase development. However, if the increase in development has great future benefits, they should proceed with it when Europe’s economy has improved since more people will be able to afford this luxury good.

           

Conclusion

Since BMW is a highly valued company, it has been performing greatly in terms of revenues. Although their revenues rose 7% from its previous year, their profit dropped by 28%. The fall in profit was due to high cost of production. BMW wanted to increase the standards of their good and charge higher price. The company’s high confidence emerged as a result of its outstanding performance in terms of sales and profit during the second quarter of its previous year. They were leading in terms of sales and to remain at that level they inserted much more cost into research and development and hiring more experts. The defeated Mercedes Benz in terms of sales in 2012 but was taken over by them in 2012. BMW however did achieve higher sales compared to its previous year but because of their high cost of production they charged higher and consumers substituted to Mercedes and thus more quantities were sold. BWM sales were also hit by European economic crises but they however still benefited highly from sales in US and Asia. To increase profit, they should decrease their cost of production for the time being and precede their development plan when Europe’s economy improves and people can purchase more of the good.

http://www.bbc.co.uk/news/business-19075068

           

Price

Price

The word “Price” revolves around our daily life and most of the time, we do not put so much of a great emphasis to it. However, through the learning of my module of Microeconomics and after a series of research, I have come to realized that the word actually carries more weight than being just a normal word.

Firstly, let me begin with the law of pricing strategy in the economics terms. The law of price states that all firms charges a single price for the particular good that they are selling. For example, all the goods and services that McDonalds provides are charged the fixed amount of money. However,  most of the times in the real word, firms charges in three different ways where one, a firm charges different prices to different consumers, two; a firm charges two-part parties and thirdly, a firm offering in fixed bundles.

In the law of one price, it is understood that identical products in the market should be sold for the same price everywhere. So, in the event that the law of one price is breached, arbitrage occurs. Arbitrage is a situation where a firm will make the most of out a single product through various prices at different locations. Firms will buy in large amount and then repackaged them into a new product, selling them more than they are worth in a single location. For example, McDonalds that is situated along the Klang Valley have a range of fixed price ranging from the burgers to their ice-cream and so forth. On the other hand, McDonalds that are situated out of the Klang Valley will have various pricing of products depending on the location and the characteristics of the consumers at the particular location. A good example would be the outlet in Genting Highland, a tourist attraction destination and located out of the Klang Valley area. The pricing of the goods are doubled because of the location, the transportation fee incurred and the fact that it is a tourist destination.

Another regularly used pricing method by firms today is price discrimination. Price discrimination means imposing different prices to various consumers for a fixed product or service (Businessdictionary.com). The differences in price are not related in the perspective of the differences in cost. To achieve successful price discrimination, the three factors of determinants are the market power, the willingness to pay of the consumers and the power to classify the different types of customers.

Based on the illustrations below, it is clear that price discrimination can occur in two situations.

Assuming that I owned a shop that sells cloths and based on the graphs above, I will further explain the relationship of elasticity demand and price. The first graph shows the price and quantity of cloths sold during peak seasons whereas the second graph shows the price and quantity of cloths during sales seasons. I apply price discrimination towards my product which is cloth during sales season knowing that more people are willing to spend on my product even if it is RM2.00 more than what I usually sell for.

In the beginning I mentioned that there are three ways that a firm charges its products in the market. The article that I’ve researched on relating to price discriminations states the other two ways which are bundling and versioning. In the article, it is proven that when a firm engages one of these methods to sell its product, there’s a high tendency of price discrimination occurring.

For example, in the article, the example used on selling laptops and office software shows price discrimination occurring in bundling. Below are the different prices that I’ve derived from the article.

Types of Situation	Price of Laptops	Price of Office Software	Total Price	Outcome
Consumers willing to pay $900 for a laptop and $100 for office software	$799	$199	$998	Consumers may only buy the laptop and not the office software
Consumers willing to pay $700 for a laptop and $300 for office software	$799	$199	$998	Consumers may only buy the office software but not the laptop

Every firm’s main goal is to achieve profit maximization. In the article, the firm alternative resort is to bundle both the office software and laptop together and sell them as an item for $999. This allows the firm to have access to both groups of consumers mentioned above. On the other hand, it benefits the firm to sell both its products at the same time and not holding on to too many of each inventory.

In the above example, the firm is practicing perfect price discrimination. To achieve success in perfect price discrimination, the firm must know the willingness to pay of all the customers to charge them the right price. The firm above has made an analysis and breaking down its data very clearly, understanding the behaviour and decision making of its customers when it comes to purchasing its laptops and office software.

 With perfect price discrimination, economic efficiency is improved because there is no more dead weight loss. Firms will know how much its consumers are willingly to pay for the product. This will lead to profit earned increases in a company and consumer surplus will eventually disappear.

In the real world, it is harder to find cases to reference but over the time, when a new product is introduced, firms will usually take advantage and discriminate the price of the product during transaction of sale. Another obvious example would be books sold in the bookstore. Usually, the books come in two different forms, a hardcover and paperback. The contents of the book are the same but the firm takes its products and repackaged it a little and charges a higher price of hardcover. The idea of hardcover was targeted for book lovers or consumers who enjoy making a collection of its books.

To conclude, I personally feel that there is a good and bad side towards price discrimination. And after this research, I find myself understanding the law and strategies of price better. I realized that the law of economics do occurs in our daily lives and we don’t usually come across.

 http://www.investopedia.com/articles/pf/11/versioning-and-bundling-sales-tactics.asp#axzz28VzQQ0w6 

Market Structures

Market Structures

The Microeconomic concept of Monopoly is one of great intrigue. The concept entails that the market power of one company or provider is in fact so strong that it dictates how the market operates. The price of that company is so influential that it is in fact that companies pricing that dictate how the others price their homogenous product.

An example of this very monopoly in Malaysia is Astro. Astro is a cable company, which provides internet for pretty much all of Malaysia’s households. They provide a service that is not only easily accessible, but it is priced very reasonably. What holds Astro apart is that they have provided a service to the Malaysian consumers that has never been provided before.  They took the risk and they let the Malaysian consumers watch international channels that they have never viewed before. In doing so, they captured the larger market share of the cable network.

The costing curve of a monopoly can be graphically shown below:

	Monopoly Costing

In the article that I have cited, it clearly illustrates Astro’s dominance on the cable television market. It states right in the beginning of the article how other vastly populated countries such as India and Indonesia, have more than 5 cable television network providers. This already illustrates the huge chunk of the market that Astro has already captured. Almost 28 million Malaysian consumers have chosen Astro over other cable networks.

This dominance in the cable television market must be brought into question.  What is startling first up is the pricing that Astro has adopted. The cheapest package they offer is for a mere RM64.61. This is a very low price to offer, especially since they offer a multitude of international channels.  The reason that the price is at a slumped rate is because the costs of production that the company has to undergo is much lesser then the costs that the other companies undergo. Not only are the barriers to entry high but the costs that will be for the monopoly will be lower than the costs that will be for someone else who enters the market. This is because of the economies of scale phenomenon, where things such as bulk buying reduce the company’s costs of production. This very fact reduces the price of the product for the consumers. Along with the price, Astro also includes 6 channels which are free to air. Some channels may be bought on box office.

Even though the barriers to entry into the cable television market are high, which essentially entails a very large capital investment; over the years there have been companies that have tried to shatter Astro’s dominance. Companies such as Al Hijrah Media Cooperation, Fine TV, UniFi, etc. have all tried to enter the market. As recent as 2012, a new company by the name of the Asian Broadcast Network, has also attempted to enter the market. They however, have recognised Astro’s dominance and have taken an original approach to revolutionise the industry. They have been famed before for using fibre optic cables, which essentially directs that their quality of channels will be of a higher quality then Astro has even offered. To top this off, they also claim to not only be cheaper than Astro, but they also say that they will offer up to 2000 channels.

The emergence of ABN has startled Astro. But to only ensure that they remain dominant in the market, it has been rumoured that they will decrease their prices by almost 50%, to ensure that they remain the only stagnant monopoly in the market. This can be achieved again, only because of the sheer low costs of production that they can achieve. The fact that they can push their prices down to that extent proves that they have been achieving supernormal profits. However, on ABN’s part, it is a massive risk to flirt with a monopoly power as they are not only influential in economic terms, but they are also very powerful in terms of the consumer loyalty that they have.

Another thing that must also be taken into consideration is that Astro may also choose to indulge in a cartel. In this format, Astro may choose to collude with ABN to form an even stronger monopoly power.  In this format also, Astro will have a colossal control over the market, and since they will be the stronger partner of the cartel they can have things more their own way. However, it is unlikely that Astro will do so as they already have a majority chunk of the market in their control.

Graphical representation of the demand curve after a collusion between Astro and ABN:

Kinked Demand Curve of collusion between Astro and ABN

In the article cited, it can be concluded that Astro is at its profit maximising point and are far away from their shutdown point. It can also be said that Astro is not exercising price discrimination, as they have definitely priced their good at a very reasonable rate.  And if Astro now invest more time and capital in their research and development, they will most definitely increase the quality of the product they offer. The fact of the matter remains that at this stage in time for the short run Astro is doing very well. They are not only providing a service that the consumers are very content with, but they are at a stage in their company’s future, where they are at a very profitable point. In the long run, things are looking good also, if the correct investment in capital and resources is made, Astro will not only prove to be a force in the cable network market, but may also choose to venture into other industries.

 http://www.consumer.org.my/index.php/development/private-sector/479-astros-monopoly-has-short-changed-malaysian-tv-viewers
 

Pakistan floods: (Demand and supply)

Pakistan floods: (Demand and supply)

http://www.telegraph.co.uk/news/worldnews/asia/pakistan/8766024/Pakistan-floods-world-ignoring-humanitarian-crisis.html

Dean Nelson the writer of this article who wrote this article on16 September 2011 at 7:00 AM BST and he belong to New Dehli India. He tells us about the flood which occurred in Pakistan in 2011,before this in 2010 flood also occurred in Pakistan but this time flood only affected one province of Pakistan, which is Sindh and it affected two million people to flee their homes, all the vital crops were damaged and left millions at risk of disease.

These three months of monsoon rain became worst for people of Sindh, approximately 300 people were died and 400000 homes were destroyed, breached sewerage, pure water canals and left two million people suffering from diseases. Ten districts had been affected; crops of cotton, sugarcane, rice and chilly crops destroyed and herbs of cattle swept away. Three million have left their homes, smaller houses have caved in and in some villages the water level was five feet high; the average annual rainfall in the ten districts is around 150 millimeters per year, but due to flood the rain in three months was 1000 millimeters.

Due to this flood Pakistan faces economic crises. Sindh is agriculture province so all the crops were destroyed. The important crops of Pakistan are cotton, sugarcane, rice and chilly. Cotton is the huge crop of Pakistan, 80% of cotton was destroyed in Sindh and thousands of industries were closed. Industries stopped supplying, all the labor was jobless. The formers and textile millers became worthless, landlord were also in serious situations because they have invested all their money in seeds to grow crops. Every year Pakistan exports millions of cotton bells and earn

                                                                                                                                                      from other countries but due to flood Pakistan couldn’t export. After cotton another huge crop of
Pakistan is rice. Rice of Sindh was totally burned, it is a daily use product because of the situation people face a shortage of rice, not only in Sindh but it also affected people of all four provinces and other countries of world because Pakistan export very big quantity of rice every year. There were no supply of rice and demand was same because of the flood prices were getting high day by day and it was a year of stagflation. Another fast growing crops are sugarcane and chilly, these crops were also affected due to the flood; prices of sugar from 33 per kilogram increased to 75 per kilogram and prices of chilly became double and it also affected international prices as Pakistan is agricultural country and depend fully on agriculture and earn thousands of dollars by exporting these crops and there are many other countries which depend on Pakistan’s agriculture like South Africa, India, Burma and many other middle east countries, due to the worst situations these counties also faced many Economical problems.

                     

                                                                                                                                                                                                                                                                                                           After all these crises people of Sindh were having another big issue which was water inside the houses and they were not having any resources to take it out because all the canals, rivers, and lakes were full of water. Government of Pakistan felt sorry and announced charity for the people and allocate them other places to live until the water goes out, due to the flood formers could not cultivate other products like wheat and many other vegetables for their next session. Wheat is the main source of the people of Pakistan, due to these climate problems the supply of wheat decreased for the next year 2012 and also other vegetables were not cultivated till the next crop to grow. Supply of all the crops which couldn’t be cultivated decreased, but demand of all these crops were same as it use to be before flood because it was getting harder for people to live and with demand prices of all the products were double the actual cost. All the affected crops like vegetables, rice, wheat and cotton; it was costly and hard for government to import from other country.

Finally Pakistan government once again appealed to the whole world for charities to help the people who were not in good condition to survive. Responding to Pakistan’s appeal China announced that they will supply relief goods worth $4.7 million for Pakistan’s flood victims. United Nations (U.N) had also appealed to the whole world for funds and goods for the people of Pakistan. Government of Pakistan took a part and helped the people and subsides them and also international countries help the people with charity of products; which we need in our daily lives. The non-governmental organizations of Pakistan and from other countries helped the families of Sindh, which faced in flood zone. Every person was given RS 10000 per month to survive and

                                                                                                                                                        many schemes were given with the name                                                                                                                                                            of Mohtarma Benazir Bhutto the ex-prime minister of Pakistan. International organizations might not be happy with government of Pakistan for its poor and not good arrangement for the next monsoon season after repeated warning to the Pakistani leaders that it might occur in 2013 and 2014 also.

Monsoon has once again proved to be disastrous for Pakistan but no one can stop the floods to occur. Some researchers has also said that Pakistan will again face a flood in the coming next two years. Due to last 2 years flood Pakistan has faced many difficulties and it also affected economy of Pakistan, the rate of poverty is going high and another 2 years are worst for people of Pakistan. So the government of Pakistan should take action and make good arrangements for the coming two years.

(supply and demand) Gas Load shedding

(supply and demand) Gas Load shedding                                                   

https://docs.google.com/viewer?a=v&q=cache:vqKu3PisqV8J:www.dadabhoy.edu.pk/Articles/Gas%2520load%2520shedding%2520hits%2520consumers%2520hard.pdf+gas+load+shedding+affecting+cng+and+industries&hl=en&gl=pk&pid=bl&srcid=ADGEESgjQMySebSQAopX54xFwwWO6kvYdbklExWz0VffzsyDLcLJMMRFEbovbLXDF_3z9_gDt96kzD4mBpXZ_3OkQAdPTUp3j1Zb5cbSf1G6WeTFuQhOKAXbVsXWr8of9KPudNiNEZmb&sig=AHIEtbTvzy7lgomLdQb8Fj4CHnqvnOqRCw

Jamal Jan is the writer of this article, he belong to Pakistan. He is telling us about the current and serious problem of Pakistan; Gas load shedding. Due to Gas load-shedding Industries and public transport is being affected because in Pakistan people use CNG for their vehicles. CNG is the type of gas, which is created from normal gas, which we use in our houses; Pakistan use CNG for vehicles since 1992 and the abbreviation of CNG is Compressed Natural Gas.

Pakistan is the country with almost all the natural resources but there is lack of one thing, which is sincerity, government is not sincere with peoples. Government is creating hand-made crises to earn money. Few years ago when the project of CNG announced, Pakistani government forced the people to use CNG kits in their vehicles. Due to shortage of petrol, diesel, and oil crises, whereas easy availability of CNG and its properties like it pollutes the air much lesser than oil, became the factor, which influenced the public with a CNG revolution. People of Pakistan started using CNG in a few years specially the public transport was running on CNG. According to investigation of 2009, there were 2,191000 vehicles using CNG engines/CNG kits and 2941 CNG filling stations are in Pakistan. Because of cheap prices the users of CNG are increasing and there are less people using patrol and diesel. According to the government of Pakistan the main reason behind CNG crises in winter is the excessive use of gas. The gas freezes in the pipes and its pressure became low. There is also increase in the use of CNG vehicles as well, but there is no increase in production. That’s why Pakistan Government continued CNG load shedding in the summer.

                                                                                                                                                        
The main big problem behind this load shedding is also affecting economy of Pakistan, due to ongoing load-shedding 90% of public transport stop using their vehicles. The Load shedding is continuously going on three days in a week (as of 2011), this cause is not only a great loss to the transport themselves but the life of the local people is also affected. An example of Pakistan’s labor who earn RS 300 a day and pays RS 10 for his trip from home to work but when the CNG is closed he has to pay RS 200 to an auto vehicle, which is running on petrol so it is hard for the labor to take expensive transport and it will be easy for him to stay home. Not only labor it affects all the goods and products because if there is no transport, supply of all the things become 25% and demand is 100% the same. An example of vegetables if the supply of vegetables is low but people have to eat they can’t live without eating so the demand of vegetables will be high as compare to supply. Load shedding of CNG is also creating difficulties for the students to use the public transport and go for their classes.

                                                

                                                                                                                                   

When supply of vegetables or any goods decrease due to lack of transport than the demand increase and when there is demand of anything than price also increases and increasing prices affects poor people and create problem for them. There is also another situation when price changes demand also changes for example when price falls 20% than the quantity demanded goes up to 40%, so whenever price of product changes there is also change in quantity demanded.

Due to not using of available natural resources, Pakistan economy is facing huge difficulties. Current ongoing load shedding of three days in Punjab is very challenging for the peoples. Peoples particularly from rural and remote areas are facing many troubles, due to traveling to urban areas for their jobs and education. The other issue is that due to load-shedding increasing fares become hard for poor people to pay. There is also black market because some CNG owners continue selling in these three days and earn a lot of money. People of Punjab are suffering due to 3 days of CNG load shedding because they don’t have any other way and if they are moving towards petrol and diesel it cost them more.

According to Ejaz the head of industries in Punjab said that 10 million workers had become unemployed due to gas load shedding. He said that it had become very hard to run industries when there are no resources. The APTMA (All Pakistan textile mill association) leader said that foreigner people are not more interested to come in Pakistan due to these crises. He further said that CNG sector was given gas for five days in a week and local peoples were burning precious gas in heaters and geysers while industry were ignored. All APTMA leader said that Minister of petroleum and natural resources DrAsim hussain had promised them that he will provide them gas for three and half days in a week but this promise could not e fulfilled.                                                                                                                                      

Due to load shedding of gas people of Pakistan are facing a huge problem. The unemployment rate of Pakistan is also high in both rural and urban areas. The reason for this that all the big industries of Pakistan like textile mills and garment factories are closing their business in Pakistan and moving towards another countries because of gas load-shedding they could not run their business properly, even single day of load-shedding causes them millions of loss. Many people say that there is no shortage of gas but government is creating their own crises because they get commission on petrol and diesel so by closing CNG stations the need of petrol increases and also demand of petrol get high and government earn millions of dollars. Government can make gas from coal, which is in Sindh Pakistan, Government is not taking any action and the people of Pakistan are in worst condition and economic of Pakistan is also going down day by day.

Pakistan government should take a part in using natural resources. If they can’t make gas than they should give some subsides on fuel in the days when CNG is closed.

Price burden of beer falls on the consumers

Article 2:

Price burden of beer falls on the consumers’

Microeconomics is the study of decisions made by individuals and firms and how it affects the economy. Microeconomics for individuals is focused on how to maximize their satisfaction and utility and for the firms profit maximization and cost minimization. Everything in an economy is taxed from what you earn to what a firm produces and sells there is some amount which is compulsory for all individual, households or firms to pay. An example for taxation on an individual would be the income tax they have to pay from what they earn and for a firm would be the sales tax they have to pay with every unit sold in the market. A government can put tax on goods for various reasons. Firstly, they can impose business taxes such as excise duty, sales tax, wholesale taxes etc.Secondly, the tax can be imposed on an individual or firm which is causing an externality; negatively affecting a third party. For example, they might increase the tax on goods like alcohol and cigarettes to reduce the consumption because of the bad effects it has on health. Taxation being a subtopic of microeconomics I am going to analyze an incidence of tax situation.

Here, the US has imposed tax on the beer, an increase of excise duty, federal tax and wholesale taxes etc probably to reduce its consumption. This increase in tax has had direct effect on the price of the beer which has obviously increased. Out of a dollar spent in the consumption of beer 36 cent is part of the federal and business taxes.

This phenomenon is about tax incidence: how an increase in tax causes the burden to be shared by both the buyers and sellers. In this case the increase in tax has caused the incidence of tax to fall by a huge amount on the consumers. According to the article out of $44 billion tax revenue $10.8 billion is paid by the customers. This is a hypothetical example of an increase of price burden falling on the buyers. The supply here shown by S and the tax paid by the consumers increases by $1.50 which makes the demand decrease to D-tax on buyers. The price received by the sellers is $2.50 this has raised the price paid by the buyers by less than the tax and lowers the price received by the seller. Hence, they share a burden of tax.

For people who can afford it beer seems to be a normal good to majority of people in the USA as the article states that an average earning American must “work at least the amount of time to buy a beer”. For some who need a can of beer to quench their thirst or lower their work stress beer would be a necessity good. Any consumer will be directly affected by an increase in the price of the good which they enjoy indulging in and in this case USA being ranked 13^th in the world in terms of beer consumption it might be a habit too for some people. If this is the case then beer has more or less an inelastic demand: quantity demanded changes by little bit with a price change. Here because the consumption of beer is a necessity rather than a luxury a little change in price doesn’t have much effect on the demand. For example, initially at price $2 100 units was being demanded however, as the tax increased the supply decreased and the burden of tax per can was 20 cents which had to be paid by the consumers.

Is the price elasticity of demand the only factor determining whether the tax burden falls on the buyers or the sellers? The answer would be it depends on the price elasticity of supply as well. If for instance the beer has a perfectly elastic supply and was sold at $1 per can. The graph below shows that when the tax on beer is increased then the price of the beer becomes $1.50 and the supply increased hence shifts upwards. The demand curves cuts the new supply curve and the point there determines how much the overall tax shared by the buyers and the sellers.

In addition because Americans are unlikely to be affected by the price hike the demand in this case might more or less remain the same.Becuase the price is increasing the suppliers might see increase in their total revenue.

If taxes on beer were imposed on countries unlike the USA where people do not earn enough to afford a beer, would it have a huge impact on the consumers? An increase in price would make people look for cheaper substitutes, depend more on imports and find illegal ways to obtain it. If this was the case then the demand for beer would be an elastic one. A change in price has a more than proportionate change in quantity demanded. People might shift towards other, cheaper alcohol which gives them a similar satisfaction. Also; this might motivate people to find illegal ways to get cheaper and low quality beer. In Myanmar illegal imports are cheaper in the market than domestic beers which have caused the economy to lose nearly $27 million per year because the imports are not taxed properly. In addition, in the UK when the taxes kept the price increasing  it made at least 12 pubs close every week as people preferred to buy other cheaper alcohol and buy one get one free deals found in the supermarkets than going to a pub. Furthermore, people might stop consuming domestic beer and shift to imported ones. If people consume a lot of imported goods then the government has to pay a high amount of money to the country where the beer has been imported from. This will have an adverse effect on the economy because there will be an out flow of money which can’t be good for any country as it will result in deficits if the imports are greater than the exports.

In conclusion, a government imposes tax on goods such as beer, other alcohol and cigarettes to reduce its consumption because of the health hazards it has on the people. The price increase affects people’s consumption pattern. This summarizes how the incidence of tax can either fall on the buyers or the sellers depending on what kind of elasticity the good has on the demand as well as supply side

http://www.huffingtonpost.com/2012/09/28/beer-taxes-institute_n_1923615.html