Maersk Supply Curve - Research Paper Example

Maersk February 28, Introduction Maersk puts into practices the supply and demand concept of economics (Sloman, . The supply theory states that the suppliers can raise prices in the current inelastic supply market. Likewise, Maersk can raise its container shipping prices when the demand market is inelastic. Maersk is capable of profitably surviving in its current global economic environment. Part I Container Shipping 2009 -2013 Supply Curve Table 1 shows the Maersk market for container shipping from 2009 to 2013 Maersk supplies the container shipping needs of its global customers. The above table shows the demand for the Maersk container Shipping needs (Barrows, 2009). The above table 1 clearly shows that the highest price is US$ 3,064. The price occurred when Maersk supplied 8.5 FFE volume tons to its customers during 2010. The supply curve also indicates tha the company’s lowest price is US$ 2,370. This price occurred when Maersk supplied 6.9 FFE volume tones to its customers during 2009. The same curve also indicates that the other prices of container shipping orders supplied to customers that occurred in 2013, 2011 and 2012and were between the US$3,064 to US$2,370. Graph 1 shows the Maersk Supply curve (Boyles, 2010). The above graph 1 clearly shows that the highest price occurred at US$ 3,064 when Maersk supplied 8.5 FFE volume tons to its customers. Likewise, the above graph indicates company’s lowest price is US$ 2,370 when Maersk supplied 6.9 FFE volume tones to its customers during 2009. Demand Curve Table 2 clearly shows that the demand information of Maersk (Boyles, 2010). Maersk purchases its container shipping needs or demands from different suppliers. The above table 2 clearly shows that the highest price is US$ 3,289.71. The price occurred when Maersk purchased 6.9 FFE volume tons from its suppliers during 2009. The supply curve also indicates that the company’s lowest demand price is US$ 2,673.29. This price occurred when Maersk purchased 7.3 FFE volume tones to its customers during 2010. The same curve also indicates that the other prices of container shipping orders supplied to customers that the remaining prices were between the US$3,289.71 and US$ 2,673.29, during 2011, 2012 and 2013 Further, the Graph 2 clearly shows that the highest price is US$ 3,289.71. The demand price occurred when Maersk purchased 6.9 FFE volume tons. The supply curve also indicates that the company’s lowest demand price is US$ 2,673.29. This price occurred when Maersk purchased 7.3 FFE volume tones (Mankiw, 2011). Derived demand. The derived demand is the demand for one product in relation to the demand for another product (Mankiw, 2011). For example, an increased demand for cars generates an increase in the demand for gasoline. Table 3 shows the derived demand between two factors (Sloman, 2010). The first factor is The customers’ demand for Maersk’ container shipping services. The customers’ demand triggers a derived demand. The derived demand is the demand for container shipping related purchases. Maersk pays for the suppliers’ delivery of much-needed container shipping operating items. In 2009, Maersk’s supplying the customer’s demand at US$2,370 per FFE million volume ton. Consequently, Maersk paid its suppliers for the related supplies at US$3,289.71 per FFE million volume ton. In 2010, Maersk’s supplying the customer’s demand at US$3,064 per FFE million volume ton. Consequently, Maersk paid its suppliers for the related supplies at US$2,673.29 per FFE million volume ton. In 2011, Maersk’s supplying the customer’s demand at US$3,828 per FFE million volume ton. Consequently, Maersk paid its suppliers for the related supplies at US$2,964.07per FFE million volume ton. In 2012, Maersk’s supplying the customer’s demand at US$3,136 per FFE million volume ton. Consequently, Maersk paid its suppliers for the related supplies at US$3,136 per FFE million volume ton. In 2013, Maersk’s supplying the customer’s demand at US$2,805.23 per FFE million volume ton. Maersk paid its suppliers for the related supplies at US$2,6743 per FFE million volume ton. Table 4 clearly shows the difference between the prices (Barrows, 2009). In 2009, Maersk generated a loss of US$ 919.71 per FFE million volume ton. In 2010, Maersk gained US$ 390.71 per FFE million volume ton. In 2011, Maersk lost US$ 136.07 per FFE million volume ton. In 2012, Maersk lost US$ 225.00 per FFE million volume ton. In 2013, Maersk lost US$ 131.23 per FFE million volume ton. However, the financial statements show that Maersk generating net profits during 2009 to 2013. The reason is that the company sold more than enough FFE million ton volumes of container shipping services to cover the operating expenses, including paying the suppliers of Maersk for items purchased. Price elasticity of Demand. Price elasticity of demand means the price of the product increases as the demand for the product increases (Blinder, 2012). During times when the price elasticity of demand is elastic, the company must reduce its prices. Consequently, the reduced prices triggers higher demand for the products. Consequently, the higher demand increases total revenues. An increase in revenues increases the company’s operating profits and net profits. When the price elasticity of demand is inelastic, the company must raise its selling prices. In this scene, the demand will only be a small customer demand drop. Table 5 shows the price elasticity of Supply of Maersk (Mankiw, 2011). The table relates to Maersk’s supplying the container shipping needs of customers from 2009 to 2013. The price elasticity of supply for 2010 and 2012 are positive. On the other hand, the price elasticity of supply for 2013 and 2011 are negative. The above table clearly shows that all the price elasticity results are less than 1.0. Consequently, price is inelastic. Price changes do not affect the supply. Price elasticity of Demand. The above table 6 shows the price elasticity of Demand of Maersk. The table relates to Maersk’s demand for the container shipping items that were bought from different suppliers.from 2009 to 2013. The price elasticity of demand for 2011 and 2012 are positive (Wall, 2011). On the other hand, the price elasticity of demand for 2013 and 2010 are negative. Similar to the prior table 5, the above table 6 clearly shows that all the price elasticity results are less than 1.0. Consequently, price is inelastic. Price changes do not affect the demand. Excess Demand. The above tables clearly show that Maersk has an excess demand for the suppliers’ container shipping items. Consequently, the suppliers of Maersk can freely increase its prices. The excess demand allows the suppliers to increase the prices of products sold to Maers (Boyles, 2010). Excess Supply. Similarly, the above tables clearly show that Maersk has an excess supply of container shipping offers. Consequently, Maersk can freely increase its container shipping prices. The excess demand permits Maersk to raise its container shipping prices (Blinder, 2012). Part II. The above graphs clearly show that Maersk can freely raise its container shipping prices (Carbaugh, 2010). The customers’ need for the services of Maersk persuades the customers to pay for the same quality services at higher prices. Maersk implements the very strategic demand theory of economics in its pricing strategy. Maersk knows that the customers need the company’s services, consequently, an increase in demand allows Maersk the luxury to increase its container shipping prices. If the customers refuse to pay for the higher Maersk service charges, the customers cannot export their goods to another country. Further, Maersks implements the supply theory of economics. The suppliers of Maersk can freely raise their container shipping supply prices. Maersk needs the services of container shipping items in order to serve its global customers. Maersk knows that the customers will be dismayed if they do not receive quality services from Maersk. Consequently, Maersk must pay for the higher container shipping supply prices charged by the Maersk suppliers. Conclusion Maersk implements the supply and demand concept of economics. The suppliers of Maersk can raise prices in the current inelastic supply market. Similarly, Maersk can raise its container shipping prices in the same inelastic demand market. Evidently, Maersk is able to profitably survive in its current global economic environment. References: Barrows, D. ,2009. Fundamentals of Economics for Business. London: World Scientific Press. Blinder, A., 2012. Economics: Principles and Policy. London: McGrawHill. Boyles, W., 2010. Economics. London: M Sharp Press. Carbaugh, R., 2010. Contemporary Economics. London: M Sharp Press. Maersk, 2013. Financial Statements. London. Retrieved from < http://investor.maersk.com/financials.cfm> Mankiw, G. (2011). Principles of Economics. London: Cengage Learning. Sloman, J., 2010. Economics for Business. London: Prentice Hall. Wall, S., 2011. Economics for Business and Management. London: Prentice Hall. Appendix Supply Curve Table 1             Demand Curve  FFE Volume  US$ per FFE volume       Millions Supply     2013 8.8 2674     2012 8.5 2881     2011 8.1 2828     2010 7.3 3064     2009 6.9 2370             Graph 1 Maersk Supply Curve Table 2 Maersk Suppliers’ Prices               FFE Volume         millions Price     2013 8.8 2,805.23     2012 8.5 3,136.00     2011 8.1 2,964.07     2010 7.3 2,673.29     2009 6.9 3,289.71             Graph 2 Demand Curve Table 3 Derived Demand                Maersk Customers  Maersk Suppliers       Supply US$ per FFE Volume Demand US$ per FFE Volume     2013 2,674.00 2,805.23     2012 2,881.00 3,136.00     2011 2,828.00 2,964.07     2010 3,064.00 2,673.29     2009 2,370.00 3,289.71             Table 4 Difference                     Gain (loss)       Supply Demand Difference     2013 2,674.00 2,805.23 (131.23)     2012 2,881.00 3,136.00 (255.00)     2011 2,828.00 2,964.07 (136.07)     2010 3,064.00 2,673.29 390.71     2009 2,370.00 3,289.71 (919.71)               Table 5 Price Elasticity of Supply                         Volume Price Price Elasticity       Millions Price Change Change Demand     2013 8.8 2,674.00 0.3 -207 (0.00)     2012 8.5 2,881.00 0.4 53 0.01     2011 8.1 2,828.00 0.8 -236 (0.00)     2010 7.3 3,064.00 0.4 694 0.00     2009 6.9 2,370.00                         Table 6 Price Elasticity of Demand                     FFE Volume   Volume Price Price Elasticity       millions Price Change Change Demand     2013 8.8 2,805.23 0.3 -330.773 (0.001)     2012 8.5 3,136.00 0.4 171.926 0.002     2011 8.1 2,964.07 0.8 290.786 0.003     2010 7.3 2,673.29 0.4 -616.422 (0.001)     2009 6.9 3,289.71                   Read More