Role of Cost in Determining Production and Consumption Essay

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Writing Assignment #2
In an essay with a strong thesis statement and specific topic sentences, answer the following
questions.
What role do costs play for consumers and producers when deciding how much to
consume or produce? How do these groups use different types of costs similarly
and differently?
You must write the paper in APA format and include a title page and references page; you do not
need to include an abstract. Your title page must include the paper title, your name, the due date,
and your class and section centered on the page; it must also include the running head (including
“Running head:”) and page number in the header—this header will be different than the rest of
your pages.
To support your arguments, you must reference and cite at least 3 scholarly publications (peerreviewed articles, books, government publications, etc.) as primary sources in your paper. Use
these sources to support your arguments—not as your arguments. You may use the textbook as a
primary, scholarly source. You may include as many secondary sources as you would like; these
may be scholarly or non-scholarly.
I highly encourage you to paraphrase your outside evidence, rather than quote it.
Your final essay should be between 1,000 and 1,500 words.
For this paper, you must submit an outline that contains…
• Your working thesis statement in the introduction,
• A topic sentence per body paragraph,
• At least one citation per body paragraph,
• At least one bullet point per body paragraph describing more about what your paragraph
will discuss and how it proves your topic sentence correct, and
• A title and a references page formatted according to APA format.
The thesis statement and topic sentences must be complete sentences.
This outline is due on Canvas only by the start of class on Tuesday, 11/14/2017. This outline is
worth up to 10 points and will contribute to your grade for Paper 2.
The paper is worth up to 90 points and will be graded using the rubric on the back. To receive full
credit, you must submit this paper as a hard copy at the start of class on Thursday, 12/7/2017 and
online through Canvas by the start of class the same day.
Ensure your digital and physical copies match identically. Forgetting to staple your paper will
result in a markdown of 5 points (5 percent); I do not bring a stapler with me to class.
Grammar
Organization
Economic
Arguments
Use of Sources
APA Format
Excellent (A):
Good (B):
Acceptable (C):
Few, if any, grammar
errors; logical
organization; thorough
arguments; excellent use
of sources; perfect APA
format.
Some grammar errors;
understandable
organization; moderate
strength arguments;
good use of sources;
good APA format.
Many grammar errors;
some organization;
weak, if present,
arguments; some use of
sources; minimal use of
APA format.
Paper Outline
Role of Cost in Determining Production and Consumption
Introduction
Thesis: As a key function in the market, both producers and consumers take into account the
cost of the commodity before deciding how much to produce and consume.
This part will highlight the connection between cost in both production and consumption.
It will also contain the thesis statement affirming that cost plays a critical role in influencing
consumption and production.
The Body
In any market economy, consumers seek to maximize their satisfaction while producers seek to
maximize profits (McLean, W. J., & Applegate, 2013).
•
This paragraph will look more into what guides producers and consumers in the market
and how the cost of commodities comes in.
By and large, the price of something goes up when the demand increases (Skousen, 2014).
•
This will be a discussion of the specific roles of cost in both production and consumption.
More so, it will highlight how consumers and producers use different types of costs to
make their decisions. Above all, it will look at how they apply the different costs
similarly and differently.
Price signals that the markets will reflect to producers and consumers determine the amount of
risk they can take when making decisions (Dwivedi, 2010).
•
Each decision is a calculated move. This part will discuss more on the risks involved with
pricing of commodities and the reasons why both producers and consumers make it a
critical consideration.
Conclusion
This is a restatement of the thesis in connection with the observations made in the
discussion. It will restate the thesis and highlight the significant deductions in a precise way, but
there will be no new information to add to this part.
References
Dwivedi, D. N. (2010). Macroeconomics: Theory and policy. New Delhi: Tata McGraw Hill
Education Pte Ltd.
McLean, W. J., & Applegate, M. (2013). Economics and contemporary issues. Mason, Ohio:
South-Western Cengage Learning.
Skousen, M. (2014). Economic logic. Washington, D.C. : Capital Press.
Running head: COST IN PRODUCTION AND CONSUMPTION
Role of Cost in Determining Production and Consumption
Student’s Name
Institutional Affiliation
Date
1
COST IN PRODUCTION AND CONSUMPTION
2
Role of Cost in Determining Production and Consumption
Introduction
As a critical function in the market, both producers and consumers take into account
the cost of the commodity before deciding how much to produce and consume respectively.
The producers must account all the cost they incur when producing so that they can
determine the price that they will charge to the consumers upon buying. On the other hand,
the consumers usually compare the amount they pay in receiving the product to the level of
satisfaction they obtain from the purchased product. Therefore, cost plays a critical role in
production and consumption of commodities in any economy. The discussion below looks at
the role of cost in producing and consuming commodities or providing and enjoying services.
Maximizing Satisfaction and Profits
In any market, there are buyers and sellers of various commodities. In most cases, the
sellers will identify a niche in the market and try to fill in the gap by providing products or
services to the consumers. Consumers will join the sellers in the market so that they can
satisfy their wants and needs. Apparently, the two groups of people have different goals in
the market. The producers will aim at maximizing their profits through sales whereas the
consumers will target to satisfy their human requirements by purchasing these products
(McLean & Applegate, 2013).
The manufacturers must factor in different types of costs involved in the production
process before setting up their costs. Price of a product is set after calculating the amount
incurred to produce it and the benefits it will offer to the users. Some of the cost incurred by
the producers include; labor costs, overhead cost, material cost among others. The sellers will
usually put the price of a particular commodity at a relatively higher level in comparison with
both manufacturing and non-manufacturing costs incurred to ensure that they earn a profit
COST IN PRODUCTION AND CONSUMPTION
3
margin (McLean & Applegate, 2013). However, the seller must consider the demand for his
/her products among the consumers irrespective of the cost to be involved. The consumers
will incur cost only when they make a purchase. The consumers will be willing and able to
pay the price of a particular commodity if just they feel that the price they pay is equivalent to
the level of satisfaction they get upon the use of the merchandise.
Demand and Price Connection
It should be noted that the manufacturers cannot only rely on the cost incurred to set
up their prices since other factors such as demand for the product may equally affect their
pricing decisions. For the customers to detect whether the cost they incur in purchasing for a
commodity is considerable, they do not only consider the level of satisfaction, but they also
consider the price of the products’ close substitutes and complementary goods (Skousen,
2014).
By and large, the price of something goes up when the demand increases (Skousen,
2014). The cost will usually determine the raw materials that a firm will use to produce its
products. Many organizations will opt to purchase quality materials that are relatively cheap
to minimize their acquisition cost thus maximizing returns at the end. The consumers will go
products in which they will incur low acquisition cost. The level of technology that a firm
embraces will depend on the cost incurred when implementing it. Use of advanced
technology in an organization is accompanied with higher price regarding installation and
maintenance thus, the cost to be experienced may limit the level of technology that a firm can
apply in its daily activities. Furthermore, costs dictate the number of distribution channels
that an enterprise can use. Managers will always choose the distribution line that will cost the
organization less cash to ensure that they maximize their returns. Direct contact between the
producer and the end user is termed as one the cost-effective channels for sellers to use.
COST IN PRODUCTION AND CONSUMPTION
4
Cost does not only have effects on the production sector, but it also influences the
consumption side of the economy. Depending on the taste and preference of consumers, more
buyers will opt to purchase commodities with lower prices as compared to those of higher
prices if they reasonably satisfy their needs or human desire (McLean & Applegate, 2013).
Therefore, cost of purchasing a product will make a consumer choose cheaper commodities
from the variety available.
Price Signals
Price signals that the markets will reflect producers and consumers determine the
amount of risk they can take when making decisions (Dwivedi, 2010). In fact, each choice is
a calculated move. Pricing of commodities involves some factors to account for, and thus the
producers have to take calculated risks when setting these prices. If the market indicates that
the price of commodities tends to go up continuously, then, the producers may decide to
increase their production levels with the aim of tapping more revenue. However, this action
may adversely affect them as increased supply may end up decreasing price of the
commodities. Increase in supply may lead to the organization to suffer losses in future due to
higher production expenses.
Another risk that producers undergo when setting prices for their commodities is that
they do not know whether the consumers will be willing and able to buy them. If the rate is
too high, consumers may decline in purchasing the product, and if it is too low, producers
may not be able to cater for the manufacturing cost, and this may cause closing down of the
business (Dwivedi, 2010). Producers must consider the level of competition in their
respective industries. A firm should ensure that the price of its goods will cost the end users
fewer expenses to earn a competitive edge over its market rivals. Consumers take a risk when
they buy products, and they are not sure if they will have a satisfaction of their needs.
COST IN PRODUCTION AND CONSUMPTION
5
Various firms will use different pricing strategies such as penetration pricing,
competition, and channel tactic to ensure that they remain in the competitive world of
business. It is difficult for firms to maintain an appealing product price for the consumers
keeping in mind that they have to make reasonable profits hence they treat pricing as a
critical consideration. The consumers also prioritize prices of the commodities they buy since
they determine the number of goods one can purchase at a given time (Dwivedi, 2010).
Conclusion
As discussed above, it is evident that cost determines the production and consumption
levels of individuals in any country. A firm should not only consider the cost of producing a
product when setting prices since it is recommendable to factor in the benefits that the
consumers will reap from using your product. Price setting is regarded as a tough task as it
may decide continuous operation or closing down of an enterprise.
COST IN PRODUCTION AND CONSUMPTION
6
References
Dwivedi, D. N. (2010). Macroeconomics: Theory and policy. New Delhi: Tata McGraw Hill
Education Pte Ltd.
McLean, W. J., & Applegate, M. (2013). Economics and contemporary issues. Mason, Ohio:
South-Western Cengage Learning.
Skousen, M. (2014). Economic logic. Washington, D.C. Capital Press.

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