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Microeconomics Final Project: Product Analysis
This text will largely concern itself with two products most of us use in our daily lives. Amongst other things, the text will in addition to describing the products also highlight the various factors that influence the demand and supply of the said products. Further, the products' available substitutes as well as complements will be identified. Later on, the long-term prospects of both products will be analyzed.
The products I chose to use for this analysis are GlaxoSmithKline's Aquafresh toothpaste and Hewlett Packard's personal computers. Aquafresh is a toothpaste brand manufactured by GlaxoSmithKline. The same is available in several varieties including but not limited to Aquafresh Ultimate and Aquafresh Triple Protection. Apart form the toothpaste, GlaxoSmithKline manufactures a wide range of other products (mostly pharmaceutical). On the other hand, HP's personal computers include general-purpose computers of varying capabilities, sizes as well as prices. In addition to personal computers, HP also manufactures a wide range of other computer software and hardware items.
The demand and supply of both HP personal computers and the Aquafresh toothpaste is determined by a wide range of factors. To begin with, one of the main factors affecting the demand of HP personal computers is the price of the said computers. For instance, were HP to set the price of its PCs far above that price which customers are able and willing to pay for, the demand for the PCs in this particular case would decrease. Secondly (and closely related to the point above), the income of consumers could also affect the demand of HP PCs. My assertion is in this case founded on the assumption that the more disposable income people have, the higher their purchasing power would be. Thus more income in this case would drive up the sales of HP PCs. The demand for HP's PCs would also be affected by the price of other similar or related products. For example, the availability of a cheaper Dell computer with the same specifications as a HP PC would be all that is needed to persuade customers to consider purchasing the alternative Dell model. The reverse is true. The demand for Aquafresh toothpaste is also affected by a number of factors. One such factor is the number of consumers in the marketplace. The obvious assumption in this case is that the higher the number of consumers, the high the likelihood that more consumers will purchase the toothpaste. This is more so the case given that toothpaste remains an essential product. The demand for Aquafresh toothpaste could also be affected by the prices of other related products i.e. Colgate. Colgate can be regarded a substitute for Aquafresh. Were the price of Aquafresh to be increased far above that of Colgate, consumers would shy away from the former in an attempt to shelter some dollars. In my opinion, promotional activities as well as advertising campaigns could also have an effect on the demand of Aquafresh toothpaste. Such promotions would avail a perfect opportunity for the company to showcase the unique characteristics of the said toothpaste. Depending on how convincing the promotion is and how many people it does reach, such a promotion could positively affect the demand of Aquafresh.
The supply of the two products is also determined by a number of factors. Production costs is one of the factors that could affect the supply of HP PCs. In this particular case, high production costs could depress supply. Increasing production costs would make the production of HP PCs less attractive. On the other hand, were the cost of production to decrease, HP would try to maximize its profits by producing more units. Secondly, yet another determinant of supply in the case of HP is the existing production technology. For instance, were HP to better its PC production techniques, this would effectively enable it to increase the number of PCs it supplies to the market. Regarding GlaxoSmithKline's Aquafresh, were the price of the product to increase, GlaxoSmithKline would find offering more units of the same profitable. The quantity of Aquafresh the company supplies to the market would most likely increase in such a case. Further, just like is the case with HP's PCs, decreasing production costs would most likely see the quantity of Aquafresh supplied by GlaxoSmithKline increase.
Substitutes according to Hirschey (2008) are "products that serve the same purpose." In such a case, tea and coffee can both be regarded substitute products. On the other hand, complements in Hirschey's (2008) own words are "products that are best consumed together." An example that immediately comes to mind in this case is that of a shaving razor and an aftershave. HP's personal computers have substitutes. Substitutes in this case include all those other PC brands which have similar capabilities and hence can be used in the same way as HP PCs. With that in mind, several products produced by HP's competitors are basically HP substitutes. These include but they are not limited to Toshiba PCs, Acer PCs, Dell PCs, etc. However, it is important to note that as I have already pointed out above, for a PC to be regarded a substitute for a HP PC, it should have the same capabilities or specifications as the HP PC under consideration. Complimentary products in this case include all those items or products whose demand is likely to be driven up by an increased demand of HP PCs. Assuming a consumer only purchases the host computer from the dealer, all the peripheral devices which would make such a computer usable are complimentary products. Specific examples in this case include but they are not limited to the keyboard, mouse, scanners, printers, etc. Products regarded substitutes for Aquafresh include all the other brands competing with this particular toothpaste brand. A good example of such brands in this case is Colgate toothpaste. Complimentary products on the other hand include floss and rinses like the Crest Pro-Health range of rinses. An increase in the demand of Aquafresh toothpaste could as well lead to an increase in the demand of floss and rinses.
As Taylor and Weerapana (2011) point out, "goods for which the price elasticity is greater than one have an elastic demand." On the other hand, goods or products having a price elasticity of demand below one in the opinion of the authors have an inelastic demand (Taylor and Weerapana, 2011). Therefore, the demand for products deemed to have an inelastic demand changes minimally as a result of an increase or decrease in price. However, a product's demand is deemed elastic if changes in price bring about significant changes in demand. While the demand of HP PCs can be regarded elastic in both the long-run and short-run, that of Aquafresh toothpaste is largely inelastic in both the short-run and long-run. In the case of HP PCs, a decrease in price would lead to a significant increase in the demand of PCs. The reverse is true. My assertion is in this case largely founded on the assumption that a significant decrease in the price of PCs would motivate more people to purchase PCs either for work or for play. Further, in the case of Aquafresh toothpaste, an increase in the price of the same would make consumers demand more of substitute products. This would significantly reduce the demand of Aquafresh. The reverse is also true in this particular case.
In both cases, the relevance of technology and R&D cannot be overstated when it comes to the production of the products. Advanced technology in the case of HP would for instance enable the company to produce PCs with enhanced capabilities in terms of speed and storage. When it comes to Aquafresh, enhanced technology would enable the company to develop unique flavors and a range of customized toothpaste varieties. In both…[continue]
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