Economic Issues of Coca-Cola Amatil - Case Study Example

Economics for Business Name Institution Tutor Date Section 1 The Main Issue Raised In The Media Report The main issue raised in the media report is to show the attempt made by the Coca-Cola Amatil in making their soft drinks brands affordable. The coca-cola Amatil has launched a 250 millilitre can that will be sold in the supermarket fridges and petrol outlets at a price not more than $2 (Sue 2014). The CCA and Coca-Cola South Pacific need to increase their sales. They believe that the small cans of Fanta, Sprite, and coca-cola will increase the volume of sales and win the trust of many customers in Australia. According to Barry O’Connell, the consumers have increasingly been asking for the smaller sized cans that are more appealing and cost effective. CCA is the main producer of soft drinks in Australia; it produces over 60% of the soft drink in the Australian market. The company has been faced with the fall in sales volume and earnings in the recent years since its prices are very high as compared to that of the competing companies like Schweppes (Sue 2014). Possible impacts The CCA hopes that the 250ml will increase its sales and persuade the owners of different stores and fast-food outlets to purchase from their wholesale divisions. Jeff Rogut believes the new cans will enable the smaller retailers to compete with the supermarkets by selling cheaper products (Sue 2014). The Main Stakeholders Impacted By The Issue The key stakeholders that will be influenced by the issue are the Coca-Cola Amatil Company, the consumer and other Competing companies. The new Coca-Cola cans will cause a significant effect on these stakeholders. The Coca-Cola Amatil company is the main stakeholder; their primary aim of producing the new brand is to maximize profits. They also want to improve their sales and win the trust of many customers in Australia. The company hopes that the new soft drink will increase their sales and make them compete effectively with the other companies (Sue 2014). The consumers are also stakeholders in the issue. They are the target market. The Coca-Cola Company is targeting the customers in order to sell their products. With the low prices of the soft drink, the consumers are compelled to buy the soft drink. The company will retain more customers due to the low prices. The cans are small in size, and the customers can move around with the cans in their handbags (Sue 2014). The competitors like the Schweppes are also stakeholders in the issue. They are affected by the new Coca-Cola cans in the market. Due to the reduced prices and the small sizes of the Coca-Cola cans, they can win more customers at the expense of the competing companies. The competitors need to come up with a new plan that can make them compete favorably with the CCA Company (Sue 2014). Economic Theories That Can Be Applied To This News Story With the introduction of the innovation in the market, the CCA Company is likely to attract many customers. This will affect the demand for the new 250 millilitre cans. Due to the low prices, the customers will increase their demand for the product. The low price will enable the consumers to acquire the Coca-Cola brand and forego other products. The amount of goods consumers buy is always influenced by the price of such goods. The chart below is a demonstration of how the new coca-cola brand can be demanded by the customers (McEachern 2011). Points X and Y are points on the demand curve. The points show the relation between the price of the cans and the quantity demanded by the consumers. This indicates that at high prices, less quantity of the Coca-Cola brand will be purchased by the customers, but with the reduced price, the demand will increase as shown in the diagram (McEachern 2011). Another economic concept that will affect the new Coca-Cola cans is the substitution effect. Due to the reduced price, the Coca-Cola new cans will be relatively cheaper as compared to other brands from the competing companies. This will make other consumers change their consumption behavior and start using the new coca cola cans (Hirschey , 2008). As the price of the cans reduces from p1 to p3, the quantity demanded increases from Q1 to Q3 As the price of the Coca-Cola cans falls to $2, the customers will switch from consuming other products and start consuming the new product. With the reduced prices, the customers’ ability and willingness to purchase the brand increases. Again , as the price of the brand falls, the customers’ opportunity cost to acquire it falls (Hirschey, 2008). The excess demand by the consumers will generate disequilibrium in the market. This will set the price below the equilibrium. At the equilibrium, the supply and demand are equal. At this point, the number of cans provided by the coca cola company is equal to the number of cans being demanded by the consumers. However, with the reduced price, there will be excess demand for the cans since the price is set below the equilibrium (McEachern, 2011). In the diagram, the market is at equilibrium when the price is set at p2 and quantity supplied Q2. When the price of the Coca-Cola cans is reduced to p3, the quantity demanded will increase to Q3.This shows excess demand for the Coca-Cola cans. Hence, the company may not supply enough cans for the customers. This will create disequilibrium in the market (McEachern, 2011). Other issues The production of the new Coca-Cola cans will enable the customers to move around with the cans in their handbags since they are smaller in size. The company will be able to outdo their competitors like the Schweppes in the Australian market. This will make the CCA Company to retain more profits than before. The Main Issue raised in the Media Report. The article ‘Australias’ polluting power industries pose high risks to the environment and the economy‘, discusses the current situation of environmental pollution in Australia. Ben Caldecott, a guest at the University of Sydney School of business, has clearly criticized the current pollution in Australia. Ben says that it has been calculated by the International Agency that almost a quarter subcritical capacity of the world should be shut down by 2020.The Australian government has around 26 gigawatts of the capacity. The country has 22 coal industrial stations which are responsible for a quarter of the Australia’s carbon emissions. According to Caldecott, four companies possessed more than half subcritical capacity. The companies included Origin, AGL, Stanwell and Delta (Taylor, 2015). Countries like China, Indonesia and Indians are not in a position to close down their new coal power stations if the old economies and the advanced economies do not close down. Ben called upon Australia and UK to lead by example; they should close down the coal power stations or else the climate will further be screwed. The Australian government should enact laws and policies that will ensure the rate of pollution in the Nation is reduced. The financial sectors and policy makers have taken initiative to address the matter of pollution. Ben thinks it is a shame and a problem for a country with all the wealth and assets to still lead in polluting the environment (Taylor 2015). Possible impacts Increased pollution may lead to adverse effects in Australia. Climate Change is one of the main consequences of the pollution. Climate change is caused by the rise in global warming which is a result of the emission of harmful gasses by the factories and the industries. Another impact is Global Warming caused by much carbon dioxide in the atmosphere. The carbon dioxide acts as a blanket and traps the heat and warms the planet. Carbon dioxide results from industrial activities such as burning of coal, natural gas and oil for energy. Increased pollution may also lead to the acidic rain. Acidic rain is mainly caused by the nitrogen oxide and sulfur dioxide in the atmosphere. Industries are the major contributors of nitrogen oxide and sulfur dioxide in Australia. Lastly, the pollution may deplete the Ozone layer. The Ozone layer is depleted by the Ozone layer depleting substances such as the chloro-fluoro carbons. Such materials originate from the coal power stations. This will render the Austrian environment unsuitable for the citizens (Chemical Engineering, 2014). The key stakeholders that are impacted by the issue The pollution affects various stakeholders in Australia. The most impacted group being the people living in Australia, the government of Australia, the industrial companies, and the investors. These groups of people feel the weight of pollution in various ways. The citizens of Australia are highly affected by pollution in the country. All the individuals feel the effect of pollution on the state. The harmful gasses such as sulfur dioxide emitted by the industries always affect the health of persons. The climatic changes in the environment also affect the lives of many citizens of Australia, The acidic rain resulting from the environmental pollution affect the plants and corrosion of cars. These demonstrate how the public are affected by the increased pollution (Chemical Engineering, 2014). The government of Australia is also affected by the pollution. They have the responsibility of protecting the public from environmental pollution. They need to set proper guidelines and directions to the industries that can help prevent pollution in the country. The government of Australia should burn all the coal power stations and set example for other nations (Taylor, 2015). The industrial companies are the main pollutants of the environment; they produce the harmful gasses that pollute the environment. The companies should be liable for any damage caused to the public or the environment. The government should do away with such industries that consistently cause major pollutions to the environment. This will help reduce the cases of pollution in the surrounding (Chemical Engineering, 2014). Investors are also stakeholders on the pollution issue. The investors need to invest in a healthy environment free from pollutions. Climatic changes affect investment in different ways; climatic change can cause natural disasters such as floods which may interfere with various investments in the country (Taylor 2015). Economic Theories That Can Be Applied To This News Story The pollution from the factories affects the general public who are not involved in the activities of the coal industry. This creates a negative impact on the public. Harmful gasses are produced which causes the climatic changes affecting the lives of the public. The Australian industries may fail to address such problems since they are concerned with their production process, not with the condition of the environment. The Australian government may step in to protect the environment. When the companies incur any external cost, their social cost and production cost are at odds. This will make the companies’ consider the cleanup of the environment irrelevant (Saundry 2008). In any case treatment and pollution costs are included in the process of production; the demand curve intersects the supply curve at the point of the high price. Due to the high prices, less demand will be created, and less pollution will occur (Saundry 2008). Many individuals would want to live in a free environment with few cases of pollution, but this is difficult due to the increased industries in Australia. These industries continually cause health threats to the public. A cost-benefit analysis creates most economic, efficient level of reducing pollution. The cost analysis shows the benefits that can be derived in reducing the level of pollution in a country and the related coast in achieving the reduction. When the there is an increase in pollution reduction, the amount required to reduce the pollution increases. As the reduction process approaches 100%, the marginal cost of every additional unit of reducing the pollution rises dramatically. If in any case the public funds are used for controlling the pollution, a limit is created on the amount of money to be spent before negatively impacting the budgets of other essential public services. It is important to have balance between the social benefits of reducing pollution and the cost incurred in reducing the pollution. The adequate balance between advantages and costs shows the optimum level of economic pollution reduction (Saundry 2008). Another economic concept is Tradable Pollution Permits.This is alternative to the pollution taxes. The program was inaugurated by the United States in 1994 requiring that every company should have a permit for any ton of sulfur dioxide they emit. Every company received the permit in regard to their historical records on the level of sulfur emission. This program enabled the Tradable Pollution Permits to be purchased and sold to the companies. Therefore, any company can invest or use expensive sulfur coal in order to reduce its emission of sulfur dioxide and later sell the excess permit. This will help offset the part of pollution reduction cost (Saundry, 2008). Other issues Pollution is a major problem for the government of Australia. The government should take major steps in controlling pollutions in the country. The environment should be free from any pollution in order to attain sustainable development in the environment. References Chemical Engineering, 2014, Achievement in saving the environment. Retrieved from http://www.chemicalengineering.org/enviro/achieve.html   Dwivedi N, 2009, Principles Of Economics, 2E, New Delhi, Vikas Publishing House Pvt Ltd, Harris A, and Amrik S, 2002, Managing change in an aluminum can manufacture plant, vol 22, no. 10, pp. 615–623 Hirschey M,2008, Managerial Economics, Cengage Learning McEachern.W, 2011, ECON Micro 3, Boston, Cengage Learning Laundry P, 2008, AP Environmental Science Chapter 21- Economic Forces, Retrieved from http://www.eoearth.org/view/article/149762/ Sue M,2014, Coca-Cola Amatil downsizes cans to increase sales, retrived from http://www.smh.com.au/business/retail/cocacola-amatil-downsizes-cans-to-increase- sales-20140925-10lxi0.html Taylor ,D, 2015, Australia's most polluting power stations pose risks to economy and environment, Retrived from :http://www.abc.net.au/news/2015-03-27/most-polluting- power-stations-named-risks-economy-environment/6353712 Read More