Impact of Economic Variables on Demand for Schmeckt Gut's Energy Bar

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ECONOMICS PRINCIPLE AND DECISION MAKING

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Executive summary
Decision making is crucial for any kind of business and market analysis works as a resource
for the process. Schmeckt Gut carries out market analysis and collects data based on the
demand for the product. The study in the paper uses the multiple regression analysis to find
out the effect of the dependent variable on the dependent variable. Furthermore, based on the
study and the relationship between the economic variables, the paper also presents
recommendations for the management of Schmeckt Gut.

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Table of contents
1.0 Introduction..........................................................................................................................4
2.0 Methods................................................................................................................................4
3.0 Discussions...........................................................................................................................4
3.1 Relationship between the different projections....................................................................4
3.2 Impact on the demand for the product of the company.......................................................5
3.3 Recommendations................................................................................................................7
4.0 Conclusion............................................................................................................................9
Reference..................................................................................................................................10

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1.0 Introduction
Decision making is one of the important functions of any organisation. The decision making
becomes more crucial in the case of B2C businesses where the customers are the consumers
of the end products. There are few resources which are required for a company to make
decisions such as market analysis, survey and many more. In this study, Schmeckt Gut is a
company that wants to introduce its energy bar product in the market. Using its marketing
analysis result, this paper aims to discuss the impacts of the different economic variable on
the demand of the product. Based on that, the study carried out in the paper also presents
recommendations based on different situations.
2.0 Methods
The study carried out in the paper uses the data given by the marketing department of
Schmeckt Gut and the secondary data and information collected from other similar papers. A
quantitative multiple regression analysis has been carried out in the paper to arrive at the
result which shows the sensitivity of the demand of the product to the changes in the external
scenarios.
3.0 Discussions
3.1 Relationship between the different projections
The income growth and inflation are two of the most important macroeconomic indicators
that measure the performance of an economy. On the other hand, a tariff rate is a tool used by
the government in order to regulate the domestic market. Karlan (2017) stated that, lowered
tariff rate makes it easier for the foreign company to invade a domestic market which in turn
becomes a trouble for the indigenous businesses.
However, all the three values are dependent on each other. The direct relationship between
the income growth and the inflation rate is justified by the theory of demand and supply. As
the income grows at the rate of 1%, the consumers will demand more products from the
market and hence the demand curve will shift rightward leading to an increase in the price of
that specific product (Laibson & List, 2015). Now this increase in the price of the product,
over time, contributes to the degrading purchasing power of the consumer and hence the
inflation. Corresponding to a 1% increase in the income can result in either of inflation rate as

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the amount of increase in the price level will depend on the elasticity of that specific product.
If the income elasticity of the demand for a specific product is less than one then the
percentage of increase in price will be less than the percentage increase in the income
(Schansberg, 2016).
Figure 1: The relationship of income and inflation
(Source: Wu & Cheng, 2015)
Again, from the perspective of the economy as a whole and considering all the products of
the market, the increase in the income shifts the aggregate demand to the right side causing
an increase in the price level. Consequently the inflation level increases with the increase in
the income. Bober (2016) commented that, increase in income not only increases the demand
for a single product of the market, but it affects the overall basket of goods and services.
Again, the aggregate demand can also explain the relationship between the inflation rate of
the market and the tariff as well. High tariff rate protects the domestic companies from the
invasion of the foreign businesses (Kagundu, & Ross, 2015). Therefore, domestic companies
get the opportunity to make the most of the increased income of the customers in the market.
The customers with their higher income will demand more domestic goods than the foreign

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goods. Due to a high Net export component of the aggregate demand, the curve will shift to
the right increasing overall price of the goods and the services of the economy (Friedman,
2018). That means a 10% tariff rate can increase the inflation of the economy to 5%.
Figure 2: The changes in the aggregate demand and price
(Source: Kagundu, & Ross, 2015)
However, the aggregate supply of the economy is not directly related to the changes in the
income (Wu & Cheng, 2015). However, there exists a relation between the unemployment
rate and the wage rates in the labour market. Thus, the Phillips curve depicts the relationship
between the level of the unemployment rate and the inflation in the economy. Walstad &
Miller (2016) commented that, the demand curve in the labour market is downward sloping
and hence the rightward shift in the demand curve corresponding to increase in the
employment opportunity increases the equilibrium wage rate of the market (Hussen, 2018).