Business and Society by Kean Birch Mark Peacock Richard Wellen Caroline Hossein Sonya Scott Alberto Salazar

Author:Kean Birch,Mark Peacock,Richard Wellen,Caroline Hossein,Sonya Scott,Alberto Salazar
Language: eng
Format: epub
ISBN: 9781783604517
Publisher: National Book Network International
Published: 2016-12-15T05:00:00+00:00

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Alternatively, Béatrice could maintain the current price and embark on an advertising campaign, in the hope that more people will buy her watches.

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Instead, Béatrice might look at what her competitors are doing and copy their business strategy; have they found cheaper sources of components, for instance?

Béatrice could combine the above strategies or try out others, but whatever she does, it will be a matter of trial and error. Béatrice has no guarantee that her change of business plan will lead to success, and, if it does not, she will, eventually, confront the ultimate option of admitting failure and closing down her business.

Let us assume that other watchmakers are in a similar position to Béatrice at the end of year 1, and the unsuccessful businesses (including Béatrice’s) all close down. Next year, in year 2, there will be fewer watches on sale; the market, one might say, has ‘corrected’ the oversupply of watches in year 1. This would be an example of ‘self-correction’. What that means is that a number of suppliers have withdrawn from the market because of their unfavourable experience in year 1. The total number of watches produced in year 2 shrinks. Once again, this correction was not instructed by the government but is the result of the independent decisions of many separate watchmakers. The story does not end there. Imagine that market conditions in year 2 are different from those in year 1. During year 2, consumers buy more watches than they did in year 1, perhaps because wristwatches become more fashionable. In year 2, then, there will be greater demand for watches, and retailers will be looking for additional supplies of watches to sell to their customers. But the supply of watches has fallen in year 2 because Béatrice and other watchmakers shut down their businesses at the end of year 1. The increased demand for watches in year 2, together with the reduction in supply, means that watches have become scarcer, and this will increase their price. These higher prices in year 2 signal that watchmaking has become lucrative. Extant watchmakers will work overtime and produce more watches, and other producers will enter the market in the hope of making a profit.

Let us continue the story and assume that, following a period of unemployment after Béatrice closed her watchmaking business at the end of year 1, she re-enters the watchmaking business in year 3, having seen the watch business boom in year 2. In year 3 she gets lucky: she sells enough watches at high enough prices to make her desired level of profit. Something has gone right for Béatrice and she knows this because her expectation of sales, prices and profits have been met (possibly exceeded). The market, one might say, has corrected for the unexpected increase in demand in year 2 by indicating to producers, via price signals, that they should enter the watchmaking business. To Béatrice’s disappointment, however, the spike in the demand for watches in year 3 is temporary; in year

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