Question

You are the manager of a small U.S. firm that sells nails in a competitive U.S. market (the nails you sell are a standardized commodity; stores view your nails as identical to those available from hundreds of other firms). You are concerned about two events you recently learned about through trade publications: (1) the overall market supply of nails will decrease by 2 percent due to exit by foreign competitors; and (2) due to a growing U.S. economy, the overall market demand for nails will increase by 2 percent. Based on this information, should you plan to increase or decrease your production of nails? Explain.

Short answer

Marketers have described the market in various ways based on their item strategy, brand positioning, spectrum, design ideas, and a variety of other criteria. It is difficult to describe market demand since one marketer's perception of market requirements may differ from someone else's. However, these are a few market demand aspects that all marketers evaluate.

Step-by-step solution

Overall market supply

As a price-taker, the marketplace would establish the price people accept. Because of the departure of foreign rivals, demand will rise, pushing the market equilibrium out. This will eventually lead the price to rise. This is a situation in which abnormal gains may be made. When fewer sellers in the market or fewer competitors in the market, the equilibrium rises, leading to a higher market rate. Because the entire market supply of nails will decline globally, demand will rise in tandem. It is just supply as well as demand.

Overall market demand

When supply grows by 2% and demand reduces by 2%, the corporation should reduce output by 2%. Given that average prices rise with the units produced, it is critical to computing the overall production necessary when demand falls. Prices, as well as quantities, will be further considerations for us. Higher demand for nails in the U.S. is another factor for rising manufacturing. Supply as well as demand once again.