Posts tagged law

Elasticity: Hovis Case Study

bread

News Article: Click Here

Premier Food’s Hovis has experienced some significant decline in its bread sales. This is mainly because of

  1. Increase in price of bread.
  2. Rival companies keeping the low price.

Hovis’ increase in price of bread was said to be inevitable. They simply could not maintain the price as the production cost were exceeded the selling price. Consumers have turned their back on Hovis for following reasons.

  1. Whenever there is an increase on price of a product, the demand decrease. It’s the law of demand. (The degree of its decrease is determined by its elasticity). So the consumers started to buy less of their bread.
  2. Usually, bread are told to be inelastic. However, in the article it reported that there are 2 other rival companies selling bread. This has made a substitution effect for Hovis’ bread. Therefore, it has made the bread elastic.

It’s simple. There are other companies selling low-price bread, but Hovis rose its price. No consumer would leave a cheap bread to the side and buy Hovis’ expensive bread.

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The Worldly Philosophers

1. How is scarcity and survival intertwined?

In the book, a man looks at survival a problem as a member of a society related with scarcity. The fact that he is still alive seems to prove that the man has solved the problem of survival, however, the scarcity, or existence of want and misery, seem to undermine  the solution to the problem. Scarcity of resources and people’s desire for more creates problem. Economics study the scarcity of resources in a society and studies the society’s survival or endurance relating scarcity to it.

2. What are advantages and disadvantages of the two ways societies have been organized in the past?

In the primitive society, the reality that opportunity cost of not working was death forced people to work and cooperate as a member of society. The advantage of this society is that it forces everyone to work. However, the disadvantage of it is a struggle between life and death.

In advanced society, only half of the population never does anything “productive,” such as working in factories or mines. The advantage of this society is that work is not a struggle for survival like in the primitive society. However, the disadvantage of the society is that if even a small portion of the “productive” work force performed poorly or refused to work, it would affect and dismantle the structure of the society.

3. Why was there no need for economists throughout most of history?

Throughout history, most of societies had traditional economy, which means that occupation is passed down to generations. With everybody having fixed work, there was no need for economics and economists for the society did not need them to comprehend their economy or social structure.

4. Why do you think the economic  revolution was so disturbing?

In a traditional society, everything was obvious; every men had their fixed occupation. However, the idea of market system had dubious and unclear aspects. So the revolution to settle market system in these societies would have been very disturbing as it dismantled the traditional social structure. Also, it might have added uncertainties to people’s roles or occupations.

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