5-7 Page Paper Type of Good, Market Failures, Government Involvement Ford Motor

Running Head: ECONOMICS ON FORD MOTOR COMPANY 1

ECONOMICS ON FORD MOTOR 4

Economics on Ford Motor Company

Amanda McCauley

Rasmussen College

Author Note

This paper is being submitted on February, 19, 2017, for Audra Sherwood’s ECO3250 Managerial Economics course.

Economics on Ford Motor

Ford Motor Company principle business activities include designing, marketing, manufacturing, Ford products like trucks and (SUVs). The company’s key managerial sector include: Automotive and Financial sectors. Assuming the role of managerial economist in Ford Company, the following functions need to be put into place to solve complex issues of successful business decision making and future advanced planning (Froeb et al, 2014). Foremost, following the increased competition in the locomotive industry, I have to analyse the changes in macro-economic environment in the country such as GDP, demographic factors, business upturns and downturns and their adverse effects on Ford Company managerial functions. I have to obtain economic data pertaining to available substitutes and important information about the industrial market to avoid problems associated with market failure. Additionally, as a manager, I have to carry a cost-benefit analysis to determine the return on investment in the financial markets. Besides, providing the top management with economic information such as daily tax rates, competitors and providing valuable advice will be my key role (Froeb et al, 2014).

As earlier mentioned the products sold in Ford Company include: Ford trucks, sport vehicles, service parts and accessories. Particularly, Ford vehicles are distributed globally to international wholesalers and retails. The price and output of the product is determined by market forces of supply and demand. Ford Company adopts a policy mix of fiscal and monetary forces of each country to determine the market price. An equilibrium price equates market demand and supply. The prices of locomotives adjust at equilibrium holding other supply/demand push factors constant. One major supply shifter in the locomotive industry is the effect of technology and the major demand shifter is the availability of close substitutes from competitors such as Honda Motor Company. On the supply an increase in the cost of production for producing Ford cars, say the cost of steel, decreases the supply for locomotives (Mishra, 2008).

Other factors that cause change in demand other than price include: advertising, complements, quality, and income. As far a Ford Company is concerned, advertising can increase the brand loyalty of Ford Company and increase the demand. Higher spending on advertising the Ford locomotive and accessories will increase the demand. A fall in complements commodities like gasoline will increase the demand for Ford locomotives. In the financial sector, future increase in vehicle-related financing and leasing activities or Ford shares bought for speculative reasons, a future increase in prices will increase the demand. An increase in the price of close substitutes such as locomotives from the Honda Company increases the demand for the Ford Company. On the supply side, an increase in the cost of production for producing Ford cars, say the cost of steel, the price of the car becomes more expensive decreasing the quantity supplied. However, recent technology that allows Ford Company to produce cars at low cost has increased the supply for Ford locomotives and accessories ceteris paribus (Mishra, 2008).

Understanding how the demand of the product changes as the price changes is a crucial in Ford company marketing strategy. Price elasticity of demand compares the percentage change of the demand of a locomotive to its own price. For instance, following the price volatility in the locomotive industry, Ford Company can use Price elasticity of demand estimates to check on price movements. More so, the company can use elasticity of demand to check on drawbacks of a firm’s indirect tax and the ability to pass the tax burden to the consumer in order to relieve part of the tax burden. Besides, price elasticity of demand can help Ford company manage to use the policy of price discrimination that allows the company to charge prices differently of a particular locomotive but to varying market segment and this in turn yields more profit to the company (Froeb et al, 2014).

References

Froeb, L. M., McCann, B. T., Shor, M., & Ward, M. R. (2014). Managerial economics: A problem solving approach. Australia: South-Western Cengage Learning.

Mishra, R. (2008). Industrial economics and management principles. New Delhi: Laxmi Publications.