Economics IA

CARIBBEAN ADVANCEDPROFICIENCYEXAMINATION ECONOMICS INTERNAL ASSESSMENT

STUDENT NAME: SHEMAR EDWARDS CENTRE NUMBER: 100107 NAME OF SCHOOL: ST. GEORGE’S COLLEGE CANDIDATE NUMBER: 1001070982 TERRITORY: JAMAICA W.I YEAR: MAY 2015 TEACHER NAME: MS. N. QUARRIE 1

TABLE OF CONTENTS Acknowledgement …………………………………………….. Pg 3 Aims and Objectives ………………………………………….. Pg 4 Introduction …………………………………………………… Pg 5 Methodology …………………………………………………... Pg 6 Report ………………………………………………………….. Pg 7 Conclusion Recommendations Bibliography Appendices

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ACKNOWLEGEMENT

I would like to thank the LORD for giving me the wisdom and strength to complete this research because there is no way I could have finished the research without him. However, it would not have been possible without the kind support and help of friends and family. I would like to express my gratitude towards my parents and I am highly indebted toMrs Hudson and Kurt’s Auto Works for their guidance and constant supervision as well as for providing necessary resources and equipment regarding the research and also for their support in completing the research.

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AIMS AND OBJECTIVES

Title: An examination of the strategies used by Kingston Bookshop to satisfy its customers and by extension it contribution to the development of Jamaica.

The aims of the research project are: o To examine the market structure within which Kingston Bookshop operates. o Evaluate strategies Kingston Bookshop uses to attract customers. o Evaluate the contribution to the community within which Kingston Bookshop operates as well as the overall Jamaican economy.

INTRODUCTION 4

In the following research you will learn about the impact of Kingston Book Shop on the Jamaican economy. Strategies used by Kingston Bookshop to satisfy customers and towards the development of Jamaica are the main focus in this research. KINGSTON BOOKSHOP is the Caribbean's leading supplier of educational textbooks. Its flagship store located at 70b King Street in downtown Kingston holds primary place as the store selling most school texts in the Region. This location is chosen because they are closer to their resources and it is the head office. Although traditionally the chain is best known for its quality product and excellent service in meeting educational needs at all levels, Kingston Bookshop stores also offer a wide variety of other reading materials, stationery items and gifts. The objectives I am hoping to achieve are market failures and methods to avoid or prevent market failures.In spite of the difficult economic times the Kingston Bookshop continues to grow and maintain its profitability. This success can truly be attributed to the astute and inspired leadership of managing director coupled with the hard work of the management team and rank and file staff.

METHODOLOGY 5

The information for this Internal Assessment was obtained from both secondary sources and primary sources. Data from the primary sources will be obtained through non-participant questionnaires and interviews. Data from secondary sources it will be mainly from sourced textbooks, newspaper article and internet articles to clarify the market structure concepts to complete this research. Twenty questionnaires were distributed among the general population in downtown Kingston to males and females around the ages of 20-45. An interview was also taken in February with few employees and customers to obtain information about the contribution Kingston Bookshop have brought to the surrounding communities.

REPORT MODULE 1 6

Kingston Bookshop Ltd. has produced a variety of books. Since the need of books by students and teachers are very high, there have been many suppliers for this commodity. When analysing the operations of Kingston Bookshop it is important to look at the supply and demand. There are a number of factors that affect supply: price of factors of production, level of technology, government policy (tax) and objectives of the firm. The back to school season could cause an increase of supply for books, when supply increases, the supply curve shifts to the right from S0 to S1. An increase in supply of books caused by an increase in the level of technology would cause supply to increase. This would reflect by a downward shift in the suplly curve.

Y

Price

1

S0 S1

1

X Quantity Demanded

When supply decreases, the supply curve shifts to the left from S1 to S2. Demand curve DD is a vertical straight line parallel to the Y-axis. Due to decrease in supply for the product, the new equilibrium is established at point E2. Equilibrium price rises from OP to OP2 but equilibrium quantity remains the same at OQ as demand is perfectly inelastic.

1http://www.yourarticlelibrary.com/economics/effect-on-equilibrium-price-andequilibrium-quantity-micro-economics/9182/ 7

Equilibrium price and equilibrium quantity in a given market are determined by the intersection of the supply and demand curves. Depending on the elasticity’s of supply and demand, the equilibrium price and quantity can behave differently with shifts in supply and demand. We can see one example of how this works at Kingston Bookshop, if they lower their prices for books it will a cause shift in the supply curve will result in large changes in quantity demanded and small changes in price at the equilibrium point.

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Figure %: Shifts in Supply with Elastic Demand

2http://www.sparknotes.com/economics/micro/elasticity/section1.rhtml

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If Kingston Bookshop rises their prices of books causing a shift in the supply curve which will result in large changes in price and small changes in quantity at the equilibrium point.

Figure %: Shifts in Supply with Inelastic Demand

Tax is a compulsory contribution to state revenue, levied by the government on workers' income and business profits, or added to the cost of some goods, services, and transactions.A sales tax is a tax paid to a governing body for the sales of certain goods and services. In Jamaica, the government has found it to tax (sales) certain products and this tax has an effect on demand, supply and thus price. In the recent tax implemented, the company has seen the increase in price of the books being provided. This will lead to the demand of the product falling as more consumers do not feel the urge to buy the books as the price is said to be too high and has lead Kingston Bookshop to a loss of profit and production.

Elasticity refers to the degree of responsiveness in supply or demand in relation to changes in price. If a curve is more elastic, then small changes in price will cause large changes in quantity consumed. If a curve is less elastic, then it will take large changes in price to effect a change in quantity consumed. For example, if Kingston Bookshop lowers their prices that mean that they will sell more than if the prices were raised they wouldn’t sell as much.

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The Income Effect is the effect due to the change in real income. For example, when the price goes up the consumer is not able to buy as many bundles that she could purchase before. Changes in price can affect buyers' purchasing decisions. So that means if the manager of Kingston Bookshop raise the price of a book that change in price would affect the buyers’ decision causing him/her to buy less or buy at a next store for a cheaper price.

Kingston bookshop sells books but suddenly the price of a book increases and the price of the same book at Sangster’s Book Store remains constant. The customers might be more inclined to buy books at Sangster’s Book Store which is more affordable instead of buying books at Kingston Bookshop. This tendency to change your purchase based on changes in relative price is referred to as the substitution effect. When the price of books goes up, it makes books relatively expensive at Kingston Bookshop and relatively cheap at Sangster’s Book Store, which influences customers to buy fewer books and/or buy books at another store because they feel relatively poor so you now have to urge yourself to buy less. Likewise, a decrease in the price of books at Kingston Bookshop would cause you to buy more books and not going to Sangster’s Book Store. 3

Substitution Effect Income Effect

Kingston Bookshop Negative Negative

Sangster’s Book Store Positive Negative

The production cost that the Kingston Bookshop is facing is ‘capital’. Thisrefers to human-made goods which are used in the production of goods or services. For example, if KBS produce more books, they will have to pay for more raw materials, such as coated paper, book binding cloth and colour ink, etc.

3http://www.sparknotes.com/economics/micro/supplydemand/demand/section2.rht ml 10

Economies of scale refer to the cost advantages that a business obtains due to expansion. There are factors that cause a producer’s average cost per unit to fall as the scale of output is increased. "Economies of scale" is a long run concept and refers to reductions in unit cost as the size of a facility and the usage levels of other inputs increase. Kingston Book Shop is currently under technical economies. Technical economies are the cost savings a firm makes as it grows larger, and arise from the increased use of large scale mechanical processes and machinery. This means that Kingston Book Shop can benefit from expansion of the firm of technical economies because it can employ mass production techniques and benefit from specialization and a division of labour.

MODULE 2 Firstly, the term market structure refers to the level of competition experienced by businesses in an industry. Kingston Bookshop operates in a’ perfect competition market structure’.This market structure is characterized by many buyers and many sellers of a product. The product is not unique as it is available from many sellers. Firms in this market structure are price takers as they cannot sell above the price of their competitors. Firms must accept the market’s price as there are several competitors. There is perfect knowledge about the business and there are no barriers of high start-up cost, control of strategic raw materials and perfectly elastic demand curve. Some of the key characteristics that perfect completion exhibits are: there is perfect knowledge (knowing everything about the product and the market), there are large numbers of buyers and sellers, freedom of entry and exit, goods & services are homogenous and there are no government regulations in the operation of the market.

A market failure is a situation where free markets fail to allocate resources efficiently, this is a direct result of a lack of certain economically ideal factors, which prevents equilibrium. It can also be referred to as having negative effects on the economy because an optimal allocation of resources is not attained. In other words, the social costs of producing the good or service are not minimized, and this results in a waste of some resources. For example, if Kingston Bookshop buys raw materials to produce their books and all of the raw materials are not used up or minimized and results in a waste of resources which is market failure.

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Firstly, if you are operating in a perfect completion market you can only make normal profits expect in some cases if there are not many firms joined in as yet, you canmake abnormal or economical profits in the long- run but otherwise it is impossible. Normal profit is a minimum profit necessary to attract and retain suppliers in a perfectly competitive market. Markets where suppliers are making normal profits will neither expand nor shrink and will, therefore, be in a state of long-term equilibrium.

So Kingston Bookshop’s profit situation over the past 10 years would be normal profit because it is the level of profit needed for a company to remain competitive in the market. It is impossible for a firm to earn economic profit in the long run, which is to say that a firm cannot make any more money than is necessary to cover its economic costs.

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