Question

Why is it important for managers to understand the mechanics of supply and demand both in the short run and the long run? Give examples of companies whose business was either helped or hurt by changes in supply or demand in the market in which they are competing.

Answer 1

The analysis demand and supply are at the core or the basis for any business/ firm /organisation. Understanding its mechanics by the manager help him in decision making. For eg:- According to the law of demand if the price of any product decreases, then the demand of that product will increases, thus a manager by analysing the market condition can take decision regarding the sustainable use of resources, higher efficiency in production, use of technology, further business expansion, advertisement, competing with other products etc.

Let us take the example of Apple, with the revolution in the mobile telecom sector, the overall prices of cell phones decreased, but Apple does not decreased the prices initially, as a result it suffered a set back in the international market, also its competition with chinese android makers increased. Now in order to sustain the Apple managers reduced the price of its earlier models.

Another sector specific example is of companies like Exxon Mobil, Chevron Corporation, Valero Energy, Occidental Petroleum etc, with the reduction in the overall price of the gasoline, the demand of the gasoline increses as more and more people used to travel by cars, many planned vacational trips etc.