Microeconomics the Class Principles Microeconomics Text Book Essay

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The class Principles Microeconomics. text book Principles Microeconomics N. Gregory Mankiw. paper answer questions. Final Project Following a description final project ECO-112. The project parts, answered complete project.

Principles of microeconomics: Products used in daily life

Product 1: A Starbucks latte

Product description and usage

The Starbucks latte is a coffee beverage made with espresso and steamed milk. On the company website it is described as "the original coffeehouse classic. And like most classics, part of its appeal comes from its simplicity. A caffe latte is simply a shot or two of bold, tasty espresso with fresh, sweet steamed milk over it. Some prefer to add syrup or extra espresso to the recipe. Some maintain that it is entirely perfect as is" (Caffe latte, 2012, Starbucks). Starbucks lattes can be consumed 'to go' or drank in Starbucks stores, which often have the advantage for students and commuters of having free Wi-Fi. Although it may not satisfy the desires of coffee purists, the latte is supposed to be modeled upon Italian coffee beverages and is less caloric and milkshake-like than Starbucks' other beverages, such as its Frappucinos.

Factors that determine the demand for the products

Starbucks has often been described as an 'affordable luxury' product. It is not a 'necessary' product in the sense that a penny-pinching consumer can find cheaper coffee, make coffee at home, or do without coffee altogether. However, consumers may use coffee beverages as a way of 'treating' themselves after a hard day. Also, as workers are staying awake longer and longer hours, demand for caffeinated beverages has increased -- but so has the availability of substitutes like energy drinks. The economy, the availability of substitutes, and consumer trends in terms of tastes and buying habits all affect demand for Starbucks' products.

Factors that determine the supply of the products

Coffee beans are imported by Starbucks from around the world. Although not an exclusively Fair Trade-certified company, Starbucks does have Fair Trade lines of coffee. The price of coffee, the price of milk, and the price of fuel in terms of transportation all affect the price of Starbucks products. And an additional component is the price of labor, given that hourly wages of employees must be factored into the price of the coffee.

Available substitutes for the product

Many substitute goods exist for Starbucks lattes, spanning from coffee at home, coffee from other coffee houses, soda, energy drinks, tea, or iced tea...virtually any beverage that acts as a caffeinated stimulus for the drinker.

Available complements for the product

Complementary goods include the food at Starbucks, which includes pastries and sandwiches.

Is demand for the product elastic or inelastic in the short run? In the long run?

In the short and long-run, demand for this product is highly elastic. Cutting out an afternoon latte is an easy way to scale down the daily costs of living. Even someone who is highly addicted to caffeine can make do with other, lower-cost substitutes. Over the long run, someone might discover that he or she does not miss drinking Starbucks coffee very much and actually prefers drinking the coffee of another establishment, further reducing demand.

Is the firm's production capital-intensive or labor-intensive? How important is technology in producing the product? Why?

Technology is necessary for Starbucks. Although it is a 'chain' operation, Starbucks sells itself at least partially on the quality of its beverages, which it insists are superior to that of its competitors like McDonald's and Dunkin' Donuts. The coffee is produced by machines. However, overall it is a more labor-intensive operation. Once the machines are bought, there is no need to constantly update them, given the relatively limited nature of the menu, but there is a need to have a consistent source of well-trained staff to make the coffee.

In which of the four market structures does each firm operate? Describe the attributes of the firm's market that show why that is the relevant market structure.

Perfectly competitive. The wide range of substitutes and the maturity of the market demand mean that Starbucks must fight to stay ahead of its competition constantly, although its sheer size does enable it to function on an economy of scale.

What do you think are the long-term prospects for the product? Why?

To combat the recession, "Starbucks decided to raise its drink prices by as much as 8% (5 cents to 30 cents), They are doing this just when customers are cutting back on their Starbucks trips and switching to cheaper alternatives from McDonalds and Dunkin Donuts" (Starbucks price increase -- A case study in analysis, 2009, Iterative Path). The rationale was that price-sensitive customers were already shifting away from Starbucks and price-insensitive customers would remain patrons. Starbucks is likely to remain an 'affordable luxury' but the target audience for the beverage has become more upscale, thanks to the recession.

Starbucks will continue to prosper, given the demand for 'decent' coffee, particularly in affluent areas with few independent alternatives and in airports and strip malls. However, the mania for Starbucks that gripped the country is likely to be tempered by the super-saturation of the product and the explosion of competitor beverages. Starbucks must expand abroad to sustain demand for its product.

Product 2: The Big Mac

Product description and usage

The Big Mac is McDonald's signature hamburger. It is described on the company website as "a double layer of sear-sizzled 100% pure beef mingled with special sauce on a sesame seed bun and topped with melty American cheese, crisp lettuce, minced onions and tangy pickles" (Big Mac, 2012, McDonald's).

Factors that determine the demand for the products

During the recession, demand for fast food increased rather than decreased. Consumers are more pressed for time, and rather than cooking, they still prefer to eat out. McDonald's offers a low-cost alternative for people on a budget. Additionally, consumer tastes also affect demand. Although fast food companies have been condemned by nutritionists and politicians alike as the source of the nation's obesity epidemic, consumers still have a taste for high-fat, old-fashioned American 'comfort food.' McDonald's is one of the most readily-identifiable of all of the fast food chains.

Factors that determine the supply of the products

McDonald's is affected by the supply of commodity input goods, including beef, vegetables, wheat, dairy, and other foods. It is also affected by the price of fuel, given the impact of transportation costs on McDonald's input goods and American driving habits. And McDonald's is also dependent upon the cost and supply of labor, given that its product demands a low-cost workforce.

Available substitutes for the product

Many substitutes exist for McDonald's, including inexpensive dinners and lunches made by the diner at home, as well as other burger and fast food establishments.

Available complements for the product

Fries, shakes, and other foods are commonly purchased in conjunction with burgers. Additionally, children's toys are a 'complementary' good, given that the company's popular Happy Meals are usually linked to a children's cartoon character or toy of some kind.

Is demand for the product elastic or inelastic in the short run? In the long run?

Overall, demand is elastic, given the availability of substitutes. However, McDonald's has proven to have had strong staying power in the long run. Although not technically a necessity, McDonald's has branded itself as a unique product and service that has generated strong customer loyalty.

Is the firm's production capital-intensive or labor-intensive? How important is technology in the producing the product? Why?

McDonald's is highly labor-intensive, given the need for workers to operate the franchises. However, "McDonald's executives say that promoting lower-priced items and products perceived as a good value will be a top priority this year, and restaurants may have to settle for lower profit margins. But McDonald's franchisees, who operate 80% of the company's outlets, say that's…

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