Word Count: 464

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A Market Economy is the most

efficient way of organizing

economic activities. Millions of

suppliers (firm) and consumers

(buyers) make the markets. The

suppliers and consumers sell and

purchase goods that satisfy the

wants of consumers and suppliers.

Suppliers and consumers make

rational decisions, respond to

incentives and make tradeoffs. Over

all trade makes everyone better

off. (Mankiw) If one firm does not

meet the wants of the consumer then

they will lose their place in the


Sales for most major retailers have

risen this quarter, while others

have fallen. The over all sales

gain equals 7.9%. (Chandler) Sales

rose because consumers are not

bothered by threats of war. Also,

they feel confident in current and

future stability of the economy.

The reason some retailers lost and

most gained could be a number of

possibilities: Prices might be too

high for the consumer"s taste.

Marketing strategies appealed to

consumer"s tastes. Consumer"s

expectation of future prices and

economic stability.

Consumer purchasing goods from some

firms dropped. This could have been

because of price increase of goods

sold by retailers. Prices of goods

rose because of cost increase due

to the rise in Average Total Cost.

Average Total Cost is Total Cost

(everything that is given up to pay

for good) divided by Quantity (how

many goods the firm produces). This

will be driven up by the Variable

Cost (costs that vary with the

quantity of output produced)

because of inflation; wage increase

and cost of goods needed to produce

the final good.

With some firms rising having their

Average Total Cost going up and not

increasing price, they will lose

profit. Profit is attained by

[Total Revenue (the amount a firm

receives for sales of it"s output)

divided by Quantity minus Total

Cost divided by Quantity]

multiplied by Quantity. Or, Profit

will equal (Price minus Average

Total Cost) multiplied by Quantity.

If the Average Total Cost is larger

than the price than the firm will

face either raising price or with a

short-term profit loss-shutdown. If

profit loss is in effect with the

firms long-run Average Total Cost

then the firm will have to cut

their losses and exit the market.


One reason why most firms did

better than others is because of

their Average Total Cost being

lower than the price. They will be

able to make the profit that is

needed for the firm to survive.

Another reason is because the firm

has a strong marketing strategy.

Marketing involves the gathering of

useful data: what the consumer

wants. When the data gathered and

studied the information provided

will let the firm know what goods

to produce or what type of

advertising to use. Advertisers

will make it seem that the firm"s

product is better that similar

products. Consumers will be led to

believe that the goods advertised

are better. Consumers will purchase

the goods that have a higher price,

as long as the price is rational.

Firms that have maximized marketing

and advertising will be the ones

that make profit. Some retailers

such as Sears, whose sales dropped

0.9%(Domestic) due to disappointing

sales in apparel (Chandler)

Comparing with Eddie Bauer whose

sales rose 5% since 1998. The

reason why Sears"s sales dropped

and Eddie Bauer sales rose is

because of a strong advertisement

strategy. Sears never mentioned

advertisement and Eddie Bauer has a

strong advertisement strategy

letting consumers purchase their

goods over the Internet.