Strong yen hurting Japan; JAL’s Doom?

Japanese yen has recently reached 84 yen to a dollar, “the US currency’s lowest level since the mid-1990′s” (BBC). It is evident that the Japan yen has started to dominate the market but is the “strong” yen really isn’t giving Japan any benefits. Rather, it is causing difficulties with the competitiveness of Japanese exports. With the yen so expensive, exports become expensive which in turn leads to less demand. In addition to this lack of demand in exports, consumers are taking advantage of the US’s new low currency by buying the dollar rather than yen which would ultimately slow down Japan’s growth and recovery from the recession.

With the yen hurting Japanese exports, how would JAL deal with it? Currently, JAL should be panicking, trying to lower costs in order to increase profit from the lack of demand during the recession as well as to cope with the shifting demand curve due to the deflation in Japan. With the additional yen problem pushing prices up due to the expensive exchange rate and causing the economy to slide down the already lowered demand curve,  JAL will really need to start lowering costs. The small tricks they’ve been using such as giving un-heated Japanese obentos are not going to suffice in this crisis. Even more consumers are going to stop buy JAL tickets since with the current exchange rate, buying yen would be unreasonable. Though it seems that JAL might be able to depend on foreign consumers to continue to fly JAL during Japan’s time of deflation, the strong yen is ultimately crossing that option out as well.

US’s Step Towards Recovery

In the U.S, consumer spending “accounts for more than 2/3 of the economy” therefore once the U.S. population steps and and start buying, the economy take a leap towards recovering from the recession. Consumer spending in the US increased 0.7% compared to last month’s 0.6% decline.  This is considerably surprising to economists since according income elasticity of demand, with so many people out of jobs due to the recession, people should have lower incomes and be saving more rather than spending more. According to the number though, peopel are spending more. Of course, income elasticity would depend on the good and service itself but generally, when people have less money in their pockets, they spend less. According to the article from BBC Economic News, consumers spend the most on durable manufactured goods “such as cars and household applicances”. These are normal goods therefore it is understandable why people would buy more of these good rather than luxury goods such as expensive chocolates and movie tickets. It can be assumed that rather than spending money on such luxury goods, consumers are saving to buy essential goods.

Japan Back to Deflation: JAL experiencing turbulence?

According to BBC’s economic news, deflation has come back to Japan “for the first time since 2006″. Japan’s economy has just left the recession earlier this year, giving the country hope for consistent growth from the 4.8% it had been experiencing since July. Unfortunately, with this sudden “turbulence” of deflation, how would companies such as JAL who have been struggling since the recession cope? Falling prices would mean less profit for JAL since it would be forced to lower prices, squeezing their profit margin. From the beginning, the reason Japan is experiencing this deflation is due to a shift in demand to the left. Consumers are not buying therefore there is a surplus of stock, forcing suppliers to lower costs to sell their stock. In other words, as JAL tries to cut back on costs to survive in the recession, it also needs to cut back even more in order to reach the shifting demand curve. On the contrary, unlike the recession which occured globally, this deflation is specifically Japan at the moment. Since it can be assumed that JAL is gaining profit from consumers outside of Japan, JAL might still have a trump card.

The One and Only: Oprah Winfrey!

In this entire world, there is only one Oprah Winfrey who makes millions off of her popular talk show and magazine. Because there will only ever be one Oprah, the elasticity of supply is very inelastic. No matter how much people pay to buy her magazine or watch her show, there will only ever be ONE Oprah on the market. Suppliers can’t make more of her no matter how many people demand here, therefore, she is a perfectly inelastic product with perfectly inelastic supply. Looking at the graph, one can see that with every shift in demand, the total revenue would change drastically due to the straight, vertical line. It is no wonder how Oprah can be the richest woman in the entertainment business since one shift can bring in so much more revenue.

Jeans market “fraying at the edges”

The jeans market has experienced a great boom of popularity over the past few years selling their products to a wide range of consumers from teens to middle-aged women. Unfortunately, due to the economic crisis from 2007, the market underwent a mass decline in sales with a 15.3% decrease in sales in jeans for 25-34 year olds. The most significant growth in the market is actually from 55-64 years olds; which is who Not Your Daughter’s Jeans are targeting. NYDJ target this neglected section where the consumers have a lot of disposable income and a desire for comfortable but fashionable jeans. Because of this disposable income, NYDJ have become more inelastic therefore giving the company steady profit. As a normal good, as income increases, demand increases therefore by taking advantage of this specific section of the market, NYDJ can make a larger profit.

NYDJ provides good quality and stylish products that are not as expensive but satisfy middle aged women. Their jeans being normal goods, an increase in the income of their consumers do not effect the quantity demanded drastically, unlike superior goods which fluctuates more dramatically depending on income. Companies which sell superior goods benefit a lot when income rises since a lot more profit is made but once income drops, a drastic decrease in demand follows as well. It follows a cyclical process and because of this, superior goods are considered very unstable. As NYDJ are normal goods and follow a more inelastic demand curve, the company would be safe from such fluctuations. The profit would be steady but slower.

http://www.just-style.com/article.aspx?id=103175

Hovis Losing Bread Wars

Due to the rise in wheat prices, the supply curve shifts, causing the three bread companies to make specific choices about elasticity. Because Premier raised the price eariler than its competitors, their consumers went to its competitors to buy bread since it was cheaper. Premier most likely assumed that bread was inelastic, therefore raising the price of bread to cover the additional costs caused by the raise in wheat prices. The other two companies acted with the thought that bread is elastic therefore they waited as long as they could until they were forced to raise the price of their bread. Since Premier’s sales went downhill, one can assume that Warbutons and Kingsmill, their competitors, made the right assumptions and the right choices.

Another miscalculation Premier made was the cross elasticity of demand. Because they raised their price before their competitors, they lost a lot of proft due to their competitors being more of substitutes than they thought they were. They most likely assumed that the drop in revenue would not be as large, probably about – 0.5 percent, but since there was such a large decrease in revenue, the cross elasticity was more likely -1.0 or larger.

Looking at income elasticity of demand, since people have bought less after the raise in price of Hovis’s bread during this period of recession, one cans assume that Hovis bread is more of a luxury good than a normal good since there was a significant drop in revenue of most likely more than +1. The other two competitors could be seen as inferior goods afer Hovis raised the price of their bread since people went to buy the other two competitors’ bread as substitutes.

JAL’s Survival Strategies

For the past few years, JAL has dealt with the economy as an inelastic economy where price changes do not affect quantity demanded. Because of this, the major economic crisis has proved to bring about a financial crisis to the multiple fixed costs. If they could lower their costs, their total profit would increase substantially. One way to lower their cost is to close down the domestic route throughout Japan. Because of political pressure, JAL has been gaining unnecessary costs from empty flights. By closing these routes, the costs for wages, fuel and additional services could be saved for other flights that have passengers. Another way to cut down costs could be to cut down services and benefits to employees. A major portion of the company’s revenue is put into wages and other additional benefits for employees therefore, if these are reduced, the change can create a great increase in revenue.

I believe that in a time of economic crisis, it is best to refer the economy as elastic since price would become a significant factor most consumers would be considering even more than before. There would be less people looking for quality and more people flying for price. To save money, other companies such as P&G are cutting costs by finding cheaper hotels and cheaper flights to cut down on their expenses. For JAL, this means a major loss in consumer interest.

Unit Reflection

In this section 2 unit, we looked at how supply and demand affect the economy and how the effect can be translated onto a diagram. Though the two concepts are fairly simple to understand, they are complex and difficult to apply in real life examples. I may recognize supply and demand when reading the articles we are given in class or the ones I find online but it was difficult for me to analyze the entire situation and the effects the changes have on the diagrams. Fortunately, as the unit proceeded, I became more and more familiar with the mechanisms of these diagrams through practice and it is no longer as much of a problem for me. In unit one, I would become very confused as soon as more than one factor comes into play but as the course builds up, I began to recognize the factors of the two concepts as soon as they appeared in the text and from there, I was able to translate my understanding into a graph.

I also found the consumer and producer surplus topic difficult. Since math has never been a strong subject for me,  having to apply it in a more complex and graphical situation was definitely a challenge. Through several explanations and multiple exercises, I struggled to understand what these numbers mean and how they relate to consumers and producers. It is through this practice that I now understand how these surpluses would affect the economy and the choices people make.

Out of the three sections of the data response exams (definition, graphing and evaluation), the hardest part was evaluation. I did not have any problems with drawing the diagram and comprehending the article but making assumptions and choices from the article was very difficult. I could not see beyond the surface when it came to evaluating how specific choices could affect supply and demand. I may be able to notice and assume the obvious, but when it came to connecting details to concepts and factors of economics, I lacked a clear, definite position and analytical skill. I have to become more familiar with CRAMPSS and organize my writing in a more logical format that supports my thinking. I also need to work on looking beneath the surface and thinking more about how supply and demand work together.

I believe that the one-on-one computers really helped me organize myself during class and helped me understand concepts more quickly. With additional efficiency, taking notes has become a much faster task to complete and resources can be accessed instantly through the internet. With the addition to the absence of loose papers, the program has really helped me organize myself in this course and increased my learning ability.

Overall, I feel that I have gotten much more familiar with the mechanisms and relationships between the mulitple concepts of economics. I plan to practice more data response questions and be able to relate ideas more efficiently.

Effects of Typhoon on Supply and Demand of Sugar Canes

With a shortage in sugar canes, there will be less sugar being supplied and due to the loss, the price of sugar canes would be much higher.With a shortage in sugar canes, there will be less sugar being supplied and due to the loss, the price of sugar canes would be much higher. The demand of sugar canes won’t necessarily shift since the shortage of stock doesn’t affect demand. The supply curve would definitely shift to the left and up though since factors of production were changed there would be a new equilibrium. The demand curve will not change though.

Broad Social Goals: What we did, what we learned

In this activity, we examined two different types of economies: Command and market economy. We looked at the six social goal, economic efficiency, freedom, growth, equity, security and stability, and related them to the two economies. By explicitly analyzing the specific goals of the two economies, we realized that the market economy prioritizes freedom, growth and stability while command economies prioritize equity and stability. As we compared the two side by side, we realized that though command economies seem to prioritize economic equity, market economies seem to carry out equity more productively than command economies do. Also, though both do not seem to prioritize efficiency, the specialization and freedom of choice of consumers and producers apparently increase market economies’ economic efficiency. Contrastingly, command economies surpass market economies in economic security due to the fact that pensions, jobs, income, housing and health care are all provided and guaranteed by the government.

I feel that economic stability is most important since with stability, the rest of the goals will ultimately be less lacking and the stability will act as a security for me as well.