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Table of Contents

Question 1.

Question 2.

Question 3.

Question 4.


Basic Principles of Managerial Economics - Question 1

From the law of demand, an increase in prices of commodities leads to a decrease in the number of goods demanded and a decrease in prices of commodities leads to an increase in the quantity demanded, holding other factors constant (Leone, 2014). Again, the law of supply states that the price and quantity of goods supplied are directly related, i.e., an increase in the price of goods increases the supply of the goods.

Demand and supply factors influence the success and growth of retail chains with respect to the time duration. These include (Giant Supermarket, 2020);

a). In a very short period, the occurrence of seasons can affect the demand and supply patterns. For instance, during festivals and Christmas occasions, the demand for consumption of various necessities increases. Another factor that can affect demand is the availability of cheaper substitutes. According to the survey carried out, the consumers have more choices in selecting the cheaper substitutes available. This encourages more demand for goods in the Giant supermarket.

The unavailability of fresh produce from the farm can also affect. Fresh produce is preferred and Giant stores have fresh farm produce, the provision of fresh farm produce acts as a very short-term business. Online shopping and conveniently packaged consumer goods are much preferred as time goes by (Jhinghan, 2016). As far as the very short run period is concerned in the case of consumable items for example- Vegetables, fruits, etc. the supply is constant. This can be shown with the help of a graph:

Since in the short-run period supply constant it is parallel to the y-axis & the supply curve is a straight line showing no changes in quantity supplied whereas the price changes.

b). In the short period, changes in the price for a commodity will increase its consumption hence its demand. The supply of some foreign goods into Malaysia was highly restricted at some point during the pandemic causing a shortage and even lack of certain foreign goods causing a long-term effect. The rules are however much flexible now and there has been an increase in the supply of some goods. The demand factors that are affecting the stores are the preferences of consumers. Consumers are more interested in convenient services. Another point that will add up to the demand of Giant supermarket is that of the location. From the survey carried out, 65% of the customers surveyed preferred Giant supermarket to other markets because of the location of the supermarket (Pettinger, 2017). They argued that they prefer Giant supermarket because it is nearer to their homes, making them save less on the cost of petrol and avoiding traffic jams, thus becoming more efficient.

c). in the long period, the availability of alternative players in the market will affect the growth of the retail chain market. Alternate players increase competition minimizing the demand for the supermarket's products within the market. Also, Giant stores can increase the demand and supply for its goods by increasing the raw materials, factors of production as it can get enough time to make changes in their stores accordingly. Giant supermarket uses daily special goods and weekend special goods to market their products. Again, customers get lower price offers, discounts on prices of commodities, among others (Ahn, 2019). This encourages more customers to demand their products, creating a bigger market. Increased technology increases the rate of supply in Giant Supermarket Company as technology speeds up the production process. Again, it minimizes human labor costs. The general cost of production is relatively less expensive as technology speeds the process.

d). In a very long period, marketing and advertisement efforts will be crucial for increased supply and demand trends. The more the advertisement, the more consumption and thereby the supply for commodities will increase in the long run. Advertising for products will affect the demand for goods and services such that companies who do not have enough capital or money to make posters or their products reach the public will have a few people purchase their goods. Due to the many advertisements carried out, Giant supermarket has become more popular with the people of Malaysia (Giant, 2020). The more the number of advertisements carried out, the more popular it has become; thus increased demand for the goods in the supermarket. In the very long run period, Giant supermarket will be able to set up a new building and store which will increase and maximize its profits as the demand and supply both will increase simultaneously. Also, The Government policies in the industries favor the expansion of the local businesses, thus increasing the company's chances of expansion.

Basic Principles of Managerial Economics - Question 2

Agile organizations are quick to respond to market place variations. An agile organization can be determined asorganizations that are quick in responding to changes in the marketplace, environment, and current happenings. These businesses are focused on their customer's needs which strategically think for customized rather than standardized techniques. The Giant Supermarket is one of the largest hypermarket and retail chain in the country. It has been known for its dominance for the last 75 years of its existence in the market, at has been recently expanding across Asia. In order to make the Giant Supermarket an agile organization, here are some initiatives:

Maximize the Time Perspective Principle of Economics

-> As we see, the existence of the company has been long enough not to be able to expand worldwide if the management has only maximized "Time Perspectives". In this technique, the company will learn how to improve the planning in considering short-term and long-term goals. In short, their decision-making should be bounded strictly by time, so if one strategy runs of time, they should have started planning for an alternative, appropriate for the timeline available (Holbeche, 2018). In this, it is also important to understand how to design and build policies as well as collaborate across the different players in the market. It can be described by the discounting principle in that it calls for increased monitoring of the activities of different players within the markets thereby advising on the best decision to guide growth.

Take Risks as Entering a Business is Already One

-> Giant Supermarket is very large but is not the largest as of today. They have been overcome by companies that are applying the Risk and Uncertainty principle. The future is uncertain. As we can see, we never expected to encounter a pandemic like we are experiencing today. That is why an important initiative for the company to take is to take the bigger risks to become number 1 again not just in Malaysia, not just in Asia, but think worldwide! Also, human networks are dynamic with respect to changes in the supply and demand for commodities in the market (Bankston, 2018). The owners of the supermarket need to understand and build networks that will inform how and when to change commodity supply or consumption so as to minimize losses or to increase the gains. The owners can employ the marginal analysis principle whereby; one can evaluate the impact of a change in the unit price for a commodity with respect to the other variable.

III. Understand Opportunities

-> It has been very evident that modern technology has conquered the entire economy. The most important thing that an agile organization possesses is its adaptability to the changing world (Veetil, 2020). The opportunity cost concept of economics teaches us that every opportunity must be taken into consideration in order to further improve and stand out among the rest. Technology is the best tool Giant Supermarket must take into an investment for that success. In simple words, this can be understood as in the opportunity cost principle whereby, it will involve the sacrificing of one alternative to another. This way, the supermarket will be sustaining the changes within its organization and maintaining profitability even when there is market turbulence.

Other factors

There is an enormous business growth potential for the giant supermarket of Malaysia not only to increase on its customer base but also in its net revenues and profitability. However, this can only be realized if the company makes rational and firm business decisions and engages in ventures that are viable and objective. Moreover, the supermarket needs to adopt business models aligned with the modern-day customer needs and tastes. The orchestration of viable business models will not only boost the firm's brand recognition but also increase customer loyalty (Chand, 2018). There needs to be the introduction of daily, weekly, and monthly discounts on essential household items to customers. This will all be aimed at attracting more sales on the commonly purchased household items, more so food items. At the same time, rewards and gifts need to be introduced to the most loyal customers. This will all be aimed at improving customer brand loyalty in the supermarket and the products in which it sells.

Lots of efforts need to be done in terms of improving the quality of customer service offered by the staff of the supermarket to the numerous customers that shop there. This will boost the general customer experience that customers get to feel once they shop at the supermarket. Through these initiatives, the marginal sales revenue generated by the supermarket joint will gradually improve, leading to a more vibrant and agile supermarket.

Basic Principles of Managerial Economics - Question 3

The beginning of the current year has not been too great for the Malaysian economy and after the outbreak of the COVID 19 pandemic the situation got even worse. As per the reports of the department of statistics of Malaysia, the economy is moving towards a recession which is a situation of low economic growth combined with the low inflation rate and high unemployment rate. The current economic situation in Malaysia is that the inflation has remained at 0.7% and is expected to decrease up to 0.1% at the end of this year and then increase up to 2.8% in the next year. These statistics were provided by the World Economic Outlook, which is based on the International Monetary Fund (IMF) (International Monetary Fund, 2020). Therefore, this country's economy is healthy and is on the right track to achieving high-income status within the next four years. Currently, the government has less than one percent of households that are living in poverty. Despite the booming economy, there are still some shortcomings that cause inconveniences in economic management.

 There is a fall in the household spending and the investment spending due to the instability in the financial system of the Malaysian economy due to which the aggregate demand is falling and the real GDP falls which lead to a fall in the production due to which firms cut down their production costs by firing workers. Low GDP results and low inflation rate (International Monetary Fund, 2020). Low GDP indicates low income for individuals due to which there are low savings. As household spending is falling and individuals have low income there are low growth prospects for the Giant supermarket company of Malaysia.

The problem/difficulties faced by Giant Supermarket (Giant, 2020),

  • High turnover rate: Many employees resign after working for a couple of months. They thus, have to incur huge labor turnover costs as they have to hire new employees all over again and train them.
  • Large size: the large size of the company makes it inefficient where management cannot work properly and also supervising them becomes difficult.
  • Centralization of power: Due to the large scale of the company, the centralization of power can lead to many problems within the organization.
  • High maintenance cost: The Company has to bear a huge maintenance and advertising cost which adds to the burden of cost. They need to inform the customer and advertise in order to increase sales.
  • Online shopping: Most people shop online and thus, a store like this faces a decrease in sales.
  • Panic Buying: People in big crowds and long queues are in front of the supermarkets to buys goods as the number of COVID -19 cases increases.

People were buying toilet papers, pasta, canned food, etc. in huge bulk such that the storage market was running out of the supply of goods. This is not the case only for the groceries but for pharmacies, convenience stores, and masks all were running out of supplies.

This situation is depicted in the diagram, the sudden increase in demand, shifts the demand curve to DD' from DD. An increase in demand at the initial price P creates a shortage in the market because supply cannot be increased suddenly.

One of the solutions for this situation is that the government can put a limit on buying a good. A person can only buy a limited quantity of goods.

This helps in reducing the excessive purchase of goods.

The measures could be, expanding the operations, online-selling, providing employment benefits, etc. The Giant Supermarket Company has closed down many of its stores and shrinking its scale in recent years. It continually experienced a decrease in sales, thus cannot cover its cost and was making losses.

To prevent further decrease in the performance of Giant Supermarket, some of the possible solutions to curb the economic challenges caused by COVID 19 in the Giant Supermarket of Malaysia are (Jhinghan, 2016);

  1. The government needs to take on large and unprecedented roles in securing business jobs and continuity.
  2. The management needs to make deeper institutional and policy reforms in the business cycle of Giant supermarket. These policies should strengthen demand-led recovery and build some resilience to automate economic and social stability in the Supermarket
  3. There should be a social dialogue between the government and the business management for the implementation of sustainable solutions
  4. The leadership of Giant supermarket needs to formulate policy responses to curb the economic challenges in Giant supermarket.
  5. The government needs to provide incentives to the supermarket.
  6. Open more stores/branches and thus, expand the operations in market location so as to increase the market share.

Basic Principles of Managerial Economics - Question 4

Malaysia is the 35th global largest economy in the world and is ranked number 24 in the 2020 freedom index. The country has tried to catch up with better living standards due to the diversifications of exported products and improved microeconomic cautions. It has tried to resilient the external shocks and has set goals of achieving high incomes in the coming years as they try to ensure inclusively and sustainability of growth (Sulaiman et al., 2019). The midterm review of the eleventh plan postponed the goals o the year 2024 because of the recent development of microeconomics.

Malaysia has a high saving and investment ratio when it's compared to other developing countries thus making them have a higher economic growth rate. It is found that there are three factors that cause inflation in Malaysia which include the unemployment rate, the supply of money, and the exchange rate (Leone, 2014). Malaysia is known to be an upper-middle-income country and when compared to other countries it is found to have a low inflation rate.

Due to the outbreak and massive spread of the current pandemic of the coronavirus the economy of Malaysia has however recorded a decline in the second quarter as there was a reduction in the number of exports due to restrictions that came as a result of the pandemic. This however affected the supply chains and caused a short-term period of inflation. The restrictions that came along as a result of the pandemic have led to a decrease in the consumption of certain goods, not to mention output. As per the reports of the department of statistics of Malaysia, the economy is moving towards a recession which is a situation of low economic growth combined with the low inflation rate and high unemployment rate. The current economic situation in Malaysia is that the inflation has remained at 0.7% and is expected to decrease up to 0.1% at the end of this year and then increase up to 2.8% in the next year. These statistics were provided by the World Economic Outlook, which is based on the International Monetary Fund (IMF) (International Monetary Fund, 2020).

There has also been a drop in the rate of investments both in the private sector as well as the foreign sector as well as a reduced rate of savings by Malaysians where there was recorded a contraction of YoY by 17.1% and GDP by 1.9% both in June 2020 (Open Knowledge Repository, 2020). For the third and fourth quarters of the economic year 2020, the supermarket is expected to perform much better with better techniques of delivering their goods and services, and a reduction of their prices which are adaptive to the current state of things.

Solutions to solve the problems of Giant Supermarket Company in Malaysia in business cycles using preventive and relief measures are to use a firm's internal strengths to take advantage of external opportunities. For the case of Giant, their Strengths-Opportunities strategies might be to explore into other areas in Malaysia, such as in Tawau, Semporna, and Miri, as well as to expand internationally in Southeast Asia Countries such as the Philippines, Thailand, etc (Giant, 2020). Also, to increase the variety and add a product line to their existing house brand product to gain customer's attention.

Weakness-Opportunities strategies aim at improving internal weaknesses by taking advantage of external opportunities. For their Weakness-Opportunities strategies, we think that Giant should provide adequate training and more employee benefits to their employee especially in the operation department, to lessen their turnover rate in the future. Besides that, they should also renovate or refurbished their acquired supermarkets to resemblance their Giant concept and reputation and to continue maintenance of the outlet (Jomo, 2016). (E.g. Giant Karamu sing outlet is not maintained well)

Strengths-Threats (ST) strategies use a firm's strengths to avoid or reduce the impact of external threats. ST strategies that would be appropriate for Giant would be to continue the strategy to open more branches to increase market share and to eliminate competition (Nikkei Asia, 2020). Besides, increasing the marketing of the company would be helpful.

References for The Giant Supermarket Analysis

Ahn, D. P. 2019. Principles of Commodity Economics and Finance. United States: MIT Press.

Bankston, A. 2018. HR and the Agile Organization. (n.p.): Lulu.com.

Chand, S. 2018. Managerial Economics: 6 Basic principles of managerial economics. [Online]. Available at: https://www.yourarticlelibrary.com/managerial-economics/managerial-economics-6-basic-principles-of-managerial-economics-explained/28361 [Accessed on: 26th September’2020]

Giant supermarket. (2020). Demand and supply of giant supermarket - Google search. [Online]. Available at: https://www.google.com/search?q=demand+and+supply+of+giant+supermarket&oq=demand+and+supply+of+giant+supermarket&aqs=chrome..69i57j69i61.29062j0j9&sourceid=chrome&ie=UTF-8 [Accessed on: 26th September’2020]

Holbeche, L. 2018. The Agile Organization: How to Build an Engaged, Innovative and Resilient Business. United Kingdom: Kogan Page.

International Monetary Fund. 2020. Malaysia and the IMF. [Online]. Available at: https://www.imf.org/en/Countries/MYS [Accessed on: 26th September’2020]

Jhinghan, M. L. 2016. Microeconomic Theory. New Delhi: Vrinda Publications

Jomo, K. S. 2016. Growth and Structural Change in the Malaysian Economy. United Kingdom: Palgrave Macmillan UK.

Leone, T. 2014. Demand and supply factors affecting the rising overmedicalization of birth in India. International Journal of Gynecology & Obstetrics, Vol. 127, No, 2, pp. 157-162.

Nikkei Asia. 2020. Malaysia GDP plunges record 17.1% in Q2 under pandemic pressure. [Online]. Available at: https://asia.nikkei.com/Economy/Malaysia-GDP-plunges-record-17.1-in-Q2-under-pandemic-pressure

Open Knowledge Repository. 2020. Malaysia Economic Monitor, June 2020: Surviving the storm. [Online]. Available at: https://openknowledge.worldbank.org/handle/10986/33960#:~:text=In%202020%2C%20Malaysia's%20economy%20is,prospects%20severely%20constraining%20economic%20activity.[Accessed on: 26th September’2020]

Pettinger, T. 2017. Cracking Economics. United Kingdom: Octopus Books.

Sulaiman, N. F., Asid, R., Basar, U. A., Hamid, M. F. A. and Bahri, E. N. A. 2019. Issues and Challenges in the Malaysian Economy: Towards Inclusive Growth. United Kingdom: Emerald Publishing Limited.

Veetil, V. P. 2020. Business Cycles and the Invisible Hand.  SSRN Journal 3623711. Vol. 2, pp. 1-28.

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