Economic Naturalist Essay, Research Paper

WHY

COMPANY GIVES OUT COMPLIMENTARY CALENDARS?

We

always associate the month of December with flood season especially in Kelantan

& Terengganu. December also normally become a vacation period for most of

Malaysians as this time of the year coincide with school holiday and people are

finishing off their annual leaves to be with their family. You might be

wondering what December has to do with the economy? How about calendar? People

are normally looking for calendar for incoming year in December. Many companies

in Malaysia are producing calendars to be given out to their customers, official

contacts and suppliers. We can find so many types of calendars form small and

simple to big and colorful and quite expensive too. Why companies are producing

calendars? Why they have to incur an additional unnecessary expenses? Is it part

of the advertising expenses? What are the expected benefits? They do not sell

the calendars!! Of course, they are not going to get some income out of this

activity. These are some of the issues that we are trying to explore and answer.

We will relate the issues into some of the economic theories. There must be some

economic reasons for companies to give out complementary calendars every end of

the year. Theory of the Firm A firm is an organization that combines resources

for the purposes of producing goods and/or services for sale. Firms exist

because it would be very inefficient and costly for entrepreneurs to enter into

and enforce contracts with workers and owners of capital, land, and other

resources for each separate step of the production and process. Calendars play

some roles in any firm. Generally, firms produce calendars as part of their

promotion for its products and the company itself. Normally, the calendars are

printed with company’s particulars such as company’s logo, name, address, and

contact numbers. It also has the information and pictures of products the

company produce. The pictures are normally in full color and very attractive.

These elements are very important in projection the good image and can be one of

the marketing strategies for the company. The calendars will play a role as part

of the company’s advertising effort in promoting its products and services.

Normally, calendars are given out as a complimentary to company’s customer,

suppliers, business contacts and government authorities. Sometime, people need

to buy something from the store in order to get a calendar. Believe it or not

that there are people who buy goods and products just to get the calendar. These

consumers are influenced by the year end discounts and the just for the sake of

calendar that the company offers. But as far as the company is concerned, the

above will increase public awareness of its company and products which will

later have a positive effect on its sale and profit. Of course, the company will

incur some additional expenses in producing calendars in short term but they

will gain in long term. As such, companies are willing to sacrifice short-term

profits for the sake of increasing future or long-term profits. The same goes to

other expenditures such as research & development, and new capital

equipment. These require a very high initial investment and the return may be

realized in five or ten years. Originally, the theory of the firm was based on

the assumption that the goal or objective of the firm was to maximize current or

short-term profits but, the theory of the firm now postulates that the primary

goal or objective of the firm is to maximize the wealth or value of the firm.

This is given by the present value of all expected future profits of the firm.

Future profits must be discounted to the present because a ringgit of profit in

the future is worth less than a ringgit of profit today. As such, companies are

willing to invest in producing calendars as they know that they will gain profit

in long-term. Talking about, there are two types of profit which are business

profit and economic profit. Business profit refers to the revenue of the firm

minus the explicit cost or accounting cost of the firm. The explicits cost are

the actual out-of-pocket expenditures of the firm to purchase or hire the inputs

it requires in production. While the economic profit equals the revenue of the

firm minus its explicit costs and implicit costs. Implicit cost refers to the

value of the inputs owned and used by the firm in its own production processes.

Law of Demand As mentioned earlier, calendars act as a part of advertising

channel for a company. With the right combination of distribution strategies,

design, and concepts; the message on the company and its products will reach the

consumer and it stick to their mind as calendars are hanged in our living room

for the whole year. In long term, the demand for the product is increased. It is

shown by a rightward shift of the demand curve for a product. Before, we explain

further on shift of the demand curve, let’s look at the basic law of the demand.

The law says that as the price of the commodity increase, the quantity demanded

decrease and as the price of the commodity decrease, the quantity demanded

increase. This inverse relationship between the price of the commodity and the

quantity demanded per time period is referred to as the law of demand. The

demand function faced by the firm is the relationship that identifies the

determinants of the demands for a commodity faced by the firm. These include the

price of the commodity, consumer’s income, the price of related commodities,

tastes, advertising, and other forces that are specific to the particular

industry and firm. The consumer demand theory postulates that the quantity

demanded of a commodity per time period increase with the reduction in its

price, increase in consumer’s income, increase in the price of substitutes and a

reduction in the price of complementary commodities, and increased taste for the

commodity. On the other hand, the quantity demanded declines with the opposite

changes. Now, let’s go back the issue of rightward move of a demand curve. If

any of the things held constant in drawing the demand curve change, the entire

demand curve shifts to the right so that the consumer demands more of the

commodity at each commodity price if the consumer’s income increase, the price

of substitute commodity increase or the price of a complementary commodity

falls, and if the consumer’s taste for the commodity increase. An increase in

expenditures on calendars could also lead to an increase in demand of the

product of the company and contribute to the rightward shift of the demand

curve. Regression Analysis In other words, we could say that the expenditures on

calendars could also contribute to the increase in the demand of the product or

there is a relationship between the ringgit spent on calendars and the quantity

demanded of particular product. How significance is the relationship is really

depending on some formula and data to come up with t value of the hypothesis.

The above can be shown as a regression model as follows :- Q = a – b1 P + b2Y +

b3S + b4T + b5C (5.12) (3.24) (4.56) (3.96) (4.25) R2 = 0.85 The t values which

are in parentheses below the estimated slope coefficient and the R2 value are

the assumption figures for the purpose of discussion. The value of a is the

vertical intercept and b1, b2, b3, b4, and b5 are the values of the slope

coefficient of the regression line. The above values can be determined by using

some formulas and past data on Q, P, Y, T, and C. Where Q = Quantity product

demanded P = Price of the product Y = Consumer’s income S = Price of

substitute’s product T = Consumer’s taste A = Expenditure on calendars From the

above regression model, we can see that the quantity demanded (Q) will increase

as the is a reduction in price of the product (P), increase in consumer’s income

(Y), increase in price of substitute’s product, increase in consumer’s taste,

and increase in expenditure on calendars. Using the given t values, we can

compare it with table t values at certain percentage level, normally at 5

percent level of significance. If the given (calculated) t values are higher

than the table values, we can accept the hypothesis that there are statistically

some significant relationship between Q (quantity demanded) and other

determinants of Q which are P, Y, S, T, and A. The coefficient of determination

(R2) of 0.85 shows that 85 percent of the total variation or dispersion in

quantity demanded (Q) is explained by the variation in the independents

variables which are the price of product, consumer’s income, price of

substitute’s product, consumer’s taste, and the total expenditure on calendars.

Supply and Production Theory We have mentioned on the relationship on the total

spending on calendars which have a positive effect on the quantity demanded for

a particular product. The more amount put on producing the calendar, we could

expect that there will be more product demanded. As a result, company should

response by producing more of their product. There will be more products

supplied to the market. Theory of supply shows the amount of commodity that

sellers would offer for sale at various prices. As the price of the product

increased, the quantity supplied increase. With the increase in efficiency,

reduction in resource price, and improvement in technology could cause the

supply curve to the right.