Essays on Questions 5 and 6 Coursework

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Running Head: BUSINESS Business [The of the will appear here] [The of the will appear here] [The of the [Course] Answer 5: The theory of consumer behavior states that consumers tend to chose one bundle of product over another in view of the satisfaction that they gain from one bundle in contrast with the other one (Thomas, Maurice and Sarkar, 2011). With the introduction of the flexible benefit package, consumers would be able to choose between the package that would allow them to gain the maximum satisfaction given their unique needs and demands.

I believe that with flexible benefit packages, consumers would be more tempted towards more benefits as compared to higher wages. However, this would be limited to employees with experience as young recruits are more interested in higher wages that increased benefits. If employees are allowed to choose their own benefit package, they would be able to attain more utility from the package. For example, employee A values time off more than medical coverage. On the other hand, employee B is in his late 60s and thus time off would be less important for him as compared to increased medical coverage.

Therefore, allowing employees to choose their bundle of packages would impact the employee’s perception of the organization. However, there would still be employees who could give more preference to higher wages. With higher wages, employees have greater chances of choosing their own bundle of packages. This means that the utilization of the money is dependent on them and they would not be constrained between the options of choosing one benefit package over another. Thus according to the theory of consumer behavior, employees preference over higher wages as compared to benefit package would vary between own employee to another depending on his utilization of the wages and the benefits.

Answer 6: The damage to the cigarette companies was indeed low despite the amounting penalties from the law-suits. The main reason behind this was the addictive nature of these cigarettes. Cigarettes contain nicotine that is addictive and for this reason, cigarette companies knew that their demand would not be affected with an increase in prices. This is because cigarettes are an inelastic product.

The demand for a product is said to be inelastic when changes in the price causes weak reaction from the consumers in terms of demand (Thomas, Maurice and Sarkar, 2011). Thus cigarettes are classified as a product with inelastic demand. This means that the cigarette companies had the benefit of increasing the price of the product without having any major impact on the demand of the product. As the penalties for the companies increased, the increase in costs trickled down to the consumers who suffered from an increase in price.

However, this did not lead to a decrease in demand since the consumers were already addicted. If a consumer was smoking one pack of cigarette a day, he could have not reduced his usage to half a pack because he was addicted to the product. He required his daily dosage of nicotine.   Before the imposition of penalties and the increase in the price of the product, the product enjoyed market equilibrium. This equilibrium occurs when the forces of demand and supply are balanced. With the increase in penalties, the market equilibrium was affected for a certain period of time as increase in price led to shift in the supply curve.

However, as the demand for the product is inelastic, the demand curve is nearly vertical. This means that even with a shift in supply curve, the market would be able to reach equilibrium, though it would be on a different point. References Thomas, C., Maurice, S. and Sarkar, S. (2011) Managerial Economics, New York: Tata McGraw-Hill Education  

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