Week 3 discussion | Economics homework help

 

Context

In this week’s discussion, you are going to be the CEO of a company.  In anticipation of the upcoming quarterly disclosure of profits, you  prepare your board of directors for the challenge that U.S. tariffs on  Chinese imports are having on profits.

Conceptually, you will be asked to address elasticity as a  measurement of the magnitude of a change. Additionally, you will be  asked to examine how price elasticity of demand plays a role in consumer  demand and how profits are affected by a tariff.

Instructions

For this discussion, please make yourself CEO of only one of these hypothetical companies.

  1. ‘Tis the Season—’Tis the Season is one of the  largest importers of holiday decorations, and the summer quarter is  devoted to importing decorations such as lighting, artificial trees,  table runners, and outdoor yard decorations—all of which have to be  ready to ship by early fall. In fact, we at ‘Tis the Season have a  highly inelastic supply curve, ramping up to produce decorations for  each season, and then once that season has been shipped, we move on to  the next season. Fortunately, the price elasticity of demand for almost  all of our products is 0.19.
  2. We Build Big—We Build Big is one of the largest  developers of new residential structure in the U.S. We Build Big builds  everything from apartment complexes to new single-family homes. Critical  materials such as lumber, gypsum board, and fabricate metal are largely  imported. At We Build Big, we know that our production process, the  supply curve, is relatively inelastic. The concern over profits is that  the price elasticity of demand for housing is 1.0.
  3. Very Big US Auto—Very Big US Auto is one of the  oldest and largest auto manufacturers in the U.S. Very Big US Auto’s  supply chain is highly dependent on components manufactured in China and  assembled in the U.S. Very Big US Auto knows that the price elasticity  of supply is relatively inelastic and that demand is relatively elastic,  with a price elasticity of demand of 1.2.

In your discussion post, address the following prompts within the  context of your chosen hypothetical company of which you are the CEO:

  • Is the demand curve for your product relatively elastic, inelastic,  or unitary elastic? Demonstrate this for your company’s product by how  much the quantity demanded will change if you pass on the 25% increase  in cost from the tariff as a price increase for your product. In other  words, show your calculation of the percentage change in the quantity  demanded given a 25% change in the price.
  • Given your company’s price elasticity of supply and price  elasticity of demand, prepare a statement for your board of directors as  to the potential impact of profits. Who will pay the larger share of  the tariff: your firm or your customers?

Note: In your discussion posts for this course, do  not rely on Wikipedia, Investopedia, or any similar website as a  reference or supporting source.

To earn full credit for your discussion, you must complete one post  and one follow-up or reply to a classmate. Make sure both the post and  the reply focus on the questions asked.

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