Methodology 2 (Recovered) (Recovered)

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  • 7/30/2019 Methodology 2 (Recovered) (Recovered)




    The purpose of this research is to outline the different factors affecting Best Taste Pastries ability supply

    in its current market structure. Also the researcher aims to provide reasonable recommendations to the

    business that will help to minimize or eliminate these problems. In order to effectively outline and

    analyse these factors the researcher also applies economic principles and theories. The research will

    examine areas of all three modules in the syllabus including; background to supply and the central

    problem of economics (from module 1), market structures (in module 2) and the rewards of factors of

    production (from module 3). The research will first outline and analyse the factors which affect supply

    including, taxes, technology, competition, cost of resources, products own price and natural disasters.

    The research also aims to identify the positive and negative these factors may have on supply. Whether

    the factors increase supply or decrease it.

    Note: Throughout this study the terms bakery, firm, business, producer and seller have the samemeaning.

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    Research Methodology

    Throughout this study, the researcher uses both qualitative and quantitative data. Qualitative research

    refers to an investigation in which the researcher attempts to understand some larger reality by

    examining it in a holistic way or by examining components of that reality within their contextual setting.

    The aim of qualitative analysis is a complete, detailed description. An advantage is that Individuals can

    be studied in more depth as its strength is in uncovering more about peoples experience (why things

    may be the way they are). Additionally, as qualitative research focuses on small groups, it can be less

    expensive than quantitative research which may require large groups of participants or expensive

    measurement tools. On the other hand, it is more difficult to determine the validity and reliability of

    linguistic data. Additionally, it is harder to determine the extent of influence that the researcher had

    over the results (e.g., through researcher bias). That is, there is more subjectivity involved in analysing

    the data.

    Quantitative research refers to an investigation in which the researcher attempts to understand some

    larger reality by isolating and measuring some components of that reality without regard of their

    contextual setting. Quantitative has its advantages and disadvantages. The advantage is that when the

    research data is collated because its simply based on numbers its a lot easier to collate and place

    together into a form of chart. Also when it comes to placing it into graphs and charts its a lot easier to

    read, because if its placed into a pie chart its exceedingly simple to read. However with advantages

    always come disadvantages. One of the disadvantages is that because its all based on figures, its not

    always up to date. Its usually in constant need of updating because numbers change. Also, the picture

    of the data which emerges from quantitative analysis is less rich than that obtained from qualitative


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    Description of sample size

    Since Best Taste Pastries is the business being studied, interviews were conducted and questionnaires

    were given out to employees and owner of the company. Two persons were interviewed, the owner of

    the business and an employee that has worked there for over 17 years and the head of production. Also,

    five questionnaires were distributed to and collected from employees who have worked at the company

    for a number of years. Therefore a total of 7 persons assisted in the collected of data for this research.

    These individuals were chosen because of their convenience, thus the convenience sampling method

    was used. Convenience sampling refers to a statistical method ofdrawing representative data by

    selecting people because of the ease of their volunteering or selecting units because of

    their availability or easy access. The advantages of this type ofsampling are the availability and the

    quickness with which data can be gathered. The disadvantages are the risk that the sample might

    not represent the population as a whole, and it might be biased by volunteers.
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    Research design

    Information from employees of the business (primary data), the internet and textbooks (secondary

    data) were used to collect data for the research. Primary data is data that has not been previously

    published, i.e. the data is derived from a new or original research study and collected at the source, and

    it is information that is obtained directly from first-hand sources. One of the main advantages of

    collecting primary data is the amount of control the researchers have. This allows them to determine

    the type of method they will use in collecting the data and how long it will take them to get the data,

    thus enabling them to focus on specific aspects of their research. One disadvantage of primary

    data collection is that it consumes a lot of time. The researchers will need to make certain preparations

    in order to handle the different demands of the processes and at the same time, manage time


    Secondary data is the data that have been already collected by and readily available from other sources.

    The advantages of secondary data include: It is economical. It saves efforts and expenses; it is time

    saving; it helps to make primary data collection more specific since with the help of secondary data, we

    are able to make out what are the gaps and deficiencies and what additional information needs to be

    collected; it helps to improve the understanding of the problem; it provides a basis for comparison for

    the data that is collected by the researcher. In addition to advantages there are also some

    disadvantages. Firstly, the accuracy of secondary data is not known as there is no real control over data

    quality and the data may be outdated. The researcher does not know exactly how the data collection

    process was done and how well it was done.

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    Research instruments

    The instruments that were used to conduct this research are interviews and questionnaires, which were

    distributed among the employees of Best Taste Pastries.

    A questionnaire is a list of a research or survey questions asked to respondents, and designed

    to extract specific information. The main advantage of this instrument is that it is generally relatively

    quick to collect information using a questionnaire. Also information can be collected from a large

    portion of a group. The method also has its disadvantages which are as follows. Questionnaires are

    standardised so it is not possible to explain any points in the questions that participants might

    misinterpret. Also, open-ended questions can generate large amounts of data that can take a long time

    to process and analyse. The questionnaire consists of 19 questions of which only two are open-ended

    and the remaining 17 are closed ended. An outline of the questionnaire can be seen in the appendix.

    Interviews were also conducted in an informal manner and these types of interviews are referred to as

    non-directive interviews. An interview is a formal meeting in which one or more persons question,

    consult, or evaluate another person. An unstructured interview, on the other hand, is one without any

    set format but in which the interviewer may have some key questions formulated in advance. An

    advantage of this is that they give respondents time and opportunities to develop their answers. They

    give the respondent the opportunity to take control, to define properties and direct the interview into

    areas which they see as interesting and significant. This can lead to new and important insights for the

    researcher. However, the disadvantages include: the data is not standardised so cannot replicate;

    problem with reliability and generalising; and difficult to quantify and analyse results. A sample of the

    interview is available for viewing in the appendix.
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    Outline of research procedure

    The research was conducted over a two weeks period, from February 14 th to March 1st, 2013. The

    interviews were conducted informally. The first, with the owner was done on February 26 th, 2013 via the

    telephone and the other with Miss Lawrence, on February 28 th 2013, was conducted in person. The

    respondents to the interview had three days to complete it which was ample time to accurate complete

    them. The table was created to outlines the dates of distribution and collection of the questionnaires,

    the position of the respondents in the business and the research instrument used by each person. See

    appendix for table.

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    Before the completion of this research many problems and limitations were encountered. Firstly, since

    Best Taste Pastries is a small business only data that was received during the interviews and

    questionnaires could be used to complete the research. Unlike a large business, the bakery doesnt have

    a website or publish magazines or is published in newspaper articles, thus the sources of data was

    limited. Also, the information gathered from the interview might have been skewed and include some

    level of bias which may lead to conclusions being inaccurate and recommendations being limited.

    Additionally, only five (5) questionnaires were given out which represents a small sample and limits the

    amount of data received so as to make comparisons. Likewise, the researcher believes that the

    responses given by the respondents were very insufficient and this made it very difficult to analyse the

    companys operation.

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    Best Taste Pastries, a small business, located in Grace Plaza at 27a Seaward, Kingston 20, St. Andrew.

    The business began operations in early 1990s by current proprietor Robert Wright. The entity is a small

    bakery with only one branch and which supplies baked goods to schools, supermarkets and individual

    customers. The bakery only supplies to the local market in three parishes, Kingston, St. Andrew and St.

    Catherine. The business produces a variety of products that are mostly consumed by the poor including:

    donuts and a variety of buns and breads. The business has over 16 employees some whom have been

    working in the field for over 20 years.

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    Supply analysis

    Supply Explained

    According to Economics for CSEC Examination, supply is defined as the quantity of a product that a

    producer is willing and able to make available of sale in a market at a given price in a given time period.

    Fig 1 (supply curve)

    Law of supply

    The law of supply states that at higher prices, producers are willing to offer more products for sale than

    at lower prices this means that as the supply increases as prices increase and vice versa. In the case of

    pastries and baked products, if the price of these goods were to increase, producers like Mr. Wright will

    see it best to increase his supply and vice versa, ceteris paribus.

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    Shifts in the Supply Curve

    The supply curve can shift position; if the curve shifts to the right (from S1 to S2) this is an increase in

    supply; more is provided for sale at each price and vice versa. A shift in the supply curve of Best Taste

    Pastries can be caused by any of the factors affecting supply which will be discussed further in the


    Movement along supply curve

    A movement along the supply curve is caused by a change in price of the good or service. For instance,

    an increase in the price of a few products made by the bakery may result in an extension of supply

    (quantity supplied will increase) and vice versa.

    Fig 2 showing a shift in curve

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    Factors affecting supply

    These are defined as elements besides price which determine the available amount of a product or



    Technology, in an economic sense, defined, refers to the processes by which inputs are

    turned into outputs. Technology is said to increase when production gets more efficient- i.e. when firms

    can produce more output than they could before from the same amount of input.

    Increases in technology make it more attractive to produce (since technology increases decrease per

    unit production costs), so increases in technology increase the quantity supplied of a product. On the

    other hand, decreases in technology make it less attractive to produce (since technology decreases

    increase per-unit costs).


    As more or fewer producers enter the market this has a direct effect on the amount of a product that

    producers (in general) are willing and able to sell. More competition usually means a reduction in supply

    (for individual firms and not aggregate supply), while less competition gives the producer an opportunity

    to have a bigger market share with a larger supply.
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    Cost to produce/ cost of resources

    In addition to the price of the product being the main factor as stated in the Law of Supply, the price of

    production inputs also plays a part. The lowest price at which a firm can sell a good without losing

    money is the amount of money that it costs to produce it. If the price of inputs goes up, the cost of

    producing the good will increase. Therefore, at each price producers need to sell their good for more

    money. So an increase in the price of inputs leads to a decrease in supply (shift left). Likewise with the

    company, the more the costs of inputs like electricity, rent and cost of ingredients increase by the less

    the business is able to produce. In 2012, there was an 8% increase in the cost of baking flour and a 19%

    increase in sugar costs in 2011, main ingredients for baked products, which resulted in a decrease in the

    quantity supplied by the business.

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    Taxes and subsidies

    Government subsidies encourage an increase in supply at each price level because the subsidy provides

    a reduction in a firms costs of production. If government decides to subsidize a good, there will be

    more profit for producer.

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    However, if the government increases the taxes that it takes from producers, there will be reduced

    profit therefore less supply.

    It is also so for the supply curve of Best Taste Pastries as it has been gradually shifting to the left over the

    past few years. Taxes are constantly increasing in Jamaica thus the quantity supplied and supply of the

    business, along with other entities, are constantly decreasing.

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    Market structures

    Market structure, according to, is best defined as the organizational and other

    characteristics of a market.

    The four major market structures include:

    Oligopoly, in which a market is dominated by a small number of firms that together control the

    majority of the market share.

    Monopoly, where there is only one provider of a product or service.

    Perfect competition, a theoretical market structure that features no barriers to entry, an

    unlimited number of producers and consumers, and a perfectly elastic demand curve.

    Monopolistic Competition:

    The market structure which the business being studied belongs to is monopolistic competition, as it

    suits the characteristics of such market. This is a form ofimperfect competition where many

    competing producers sell products that are differentiated from one another (that is, the products

    are substitutes, but, with differences such as branding, are not exactly alike). Monopolistically

    competitive markets exhibit many characteristics which include the following:

    Each firm makes independent decisions about price and output, based on its product, its

    market, and its costs of production.

    Knowledge is widely spread between participants.

    There is some freedom to enter or leave the market, as there are no major barriers to entry or

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    A central feature of monopolistic competition is that products are differentiated. The business

    differentiates it products by taste package and even quality.

    Firms are price makers and are faced with a downward sloping demand curve.

    Monopolistic competition in the short run

    At profit maximisation, MC = MR, and output is Q and price P. Given that price (AR) is above ATC at Q,

    supernormal profits are possible (area PABC).

    As new firms enter the market, demand for the existing firms products becomes moreelastic and the

    demand curve shifts to the left, driving down price. Eventually, all super-normal profits are eroded away.
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    Monopolistic competition in the long run

    Super-normal profits attract in new entrants, which shifts the demand curve for existing firm to the left.

    New entrants continue until only normal profit is available. At this point, firms have reached their long

    run equilibrium.

    Clearly, the firm benefits most when it is in its short run and will try to stay in the short run by

    innovating, and further product differentiation.

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    The advantages of monopolistic competition

    There are no significant barriers to entry; therefore markets are relatively contestable.

    Differentiation creates diversity, choice and utility.

    The disadvantages of monopolistic competition

    Some differentiation does not create utility but generates unnecessary waste, such as excess


    As the diagram illustrates, assuming profit maximisation, the firm is allocatively and productively

    inefficient in both the long and short run.
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    The demand for and supply of factors

    Introduction to factors of production states that, an economic term to describe the inputs that are used in the production

    of goods or services in the attempt to make an economic profit describes the factors of production. The

    factors of production include land, labour, capital and entrepreneurship.

    Roles of the Factors of Production and their rewards


    This refers to all the natural resources that contribute to the production of goods and services. The

    reward to the utilization of land as a factor of production in the production mix is rent or economic rent.

    The business pays roughly $700,000 monthly for all its reward however rent is only 5.7% of this cost.


    This is all human contribution, be it in the form of technical or physical expertise, to the production of

    goods and services. The contribution of labour to production is known as wages and salaries. The

    business pays an estimated $500,000 monthly for this reward which means that labour contributes to

    71% of the cost of rewards.

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    This consists of all man made aids to production. It includes tools, machinery equipment, factory,

    storage, transportation and distribution facilities used in producing goods and services. The reward for

    capital is interest.


    This is the factor of production that organises, coordinates and utilizes other factors to maximize profit.

    The entrepreneur takes risk and manages other factors of production. The entrepreneur is rewarded for

    this with profits.

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    Presentation of data


    From the above figure, the factors that mostly affect the companys ability to supply can be seen. The

    graph shows that the cost to produce/ price of resources have the largest impact on the supply.

    Constant increases in the cost of the factors of production will eventually cause supply to decrease. If

    the price of inputs increases, the cost of producing the good will also increase. This will causes Best

    Tastes proprietor sell the products for more money but an increase in the price of inputs leads to a

    decrease in supply (shift left)

    price of resources




    technology changes


    price of related



    Factors that affect resources

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    Fig 2

    Figure 2 shows the different taxes that the company pays to government and the proportion of the

    taxes too. It can be seen that General Consumption Tax is mostly paid by the business 45% payments of

    the total amount of tax paid to government. The company also pays income tax and corporation tax,

    25% and 20% respectively. Other taxes such as education tax are also paid by the business and reflect a

    10% payment by the company. This might be so as these taxes are mandatory for all businesses and

    individuals to pay.





    Types of Taxes paid

    General Consumption Tax (GCT)

    income tax

    Corporation Income Tax


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    Fig 3a

    Fig 3b

    The above diagrams depict changes, increase or decrease in the types of taxes paid. Fig 3a shows that all

    of the respondents think that there are increases in taxes while Fig 3b shows that this increase in 6.3%

    and is for General Consumption Tax. On the other hand, fig 3b shows that one respondent believe that

    even though taxes are increasing some are also decreasing. This can be seen in fig 3b where corporation

    tax faces a 25% decrease, moving from 33.3% to 25% annually.







    yes no

    Increase in taxes









    GCT(increase) Coporation




    Increase /Decrease in tax


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    Fig 4a

    With increases in taxes comes decreases in supply which is evident in the about chart. Out of the five

    respondents who believe taxes are increasing, 75% believe that this increase has an impact on supply

    causing a significant decrease. However, 25% believe there is a moderate decrease while no one

    thought there is any increase which reflects the 0%. This is so as increased taxes will lower profit which

    can eventually decrease supply.




    Effect of increased taxes on supply

    significant decrease

    moderate decrease

    moderate increase


    Price ($)

    Quantity SuppliedQ12



    Fig 4b

    As a result of increases in taxes, the prices of

    products produced are forced to increase as

    the producer is not able to absorb all the

    increased expenses. Thus the price moves

    from P1 to P2 and quantity supplied moves

    from Q1 to Q2. This illustration coincides

    with the information collected from the


    Increase in Government Taxes

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    Fig 50 0.5 1 1.5 2 2.5 3 3.5

    moderately high

    slightly high

    very high

    moderately low

    levels of competition

    levels of competition

    Ingredients Estimated cost

    per bag ($)

    Daily usage


    Total cost ($)

    Flour 3500 1500 52500

    Sugar 5000 330 15000

    Butter 2800 50 2800

    Shortening 3500 350 24500

    Yeast 5500 25 5500



    3300 30 3300

    TOTAL 103600

    This figure shows the degree of

    competition that is present in the

    current market structure. It is

    seen that three of the five

    respondents thinks that

    competition is very high while

    the other two thinks it slightly

    high and moderately high.

    Fig 5b shows the ingredients

    that are mostly used in the

    making of all of the bakerys

    products. The table also

    highlights the estimated cost per

    bag of the ingredients, the daily

    usage, and the cost incurred for

    each ingredient along with the

    collective cost. The total cost is

    found by multiplying the daily

    usage by the cost per pound of

    the ingredient (NB: the cost per

    pound is not shown).

    Fig 5b

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    Fig 6

    Fig 6 shows the impacts that the very high level of competition has on supply. It is seen that it is 60% of

    the respondents believe that competition causes a significant decrease in supply. On the other hand

    20% thinks it causes a significant decrease while another 20% thinks its a mild decrease. Since there are

    many suppliers, completion is very high and this affects the company as it limits the demand for its

    products thus reducing possible profits, ceteris paribus. However, even though competition is

    moderately high, firms still have market power to set their prices due to differentiation of goods.

    Additionally this supply curve will shift to the left as more suppliers and same number of buys means

    less goods being supplied by each company.



    Effect of competition on supply

    significant decrease

    mild decrease

    moderate decrease

    Quantity Supplied

    Price ($) S2


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    Since the commencing of operations, Best Taste Pastries has faced many factors which

    impact supply however it can be concluded that cost of resources affect supply more as

    the cost to production has had the most effect on the companys operations. This is so

    as production costs have been constantly increasing in the country along with the most

    important resources the bakery uses in its products.

    These factors have both negative and positive impacts on the companys supply. For

    example, taxes and increase in the cost of factors of production negatively impact

    supply causing it to decrease. However, factors like subsidies and better utilization of

    the current factors of production can positively increase supply by causing it to increase,

    an outward shift in the supply.

    The market structure which the business belongs to is monopolistic competition, where

    there are many producers with differentiated products. The firm does not show any

    characteristics of another market structure.

    The company utilises all four factors of production and their rewards however, labour is

    the most costly reward as it is 71% of the companys monthly expenses.

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    The company needs to start marketing itself and its products through either advertisements or

    promotional incentives for customers. Marketing would significantly impact the business as it

    can drive up demand, the price of the products and eventually supply for the products.

    Also, the business needs to become be up-to- date with the modern technological times. It

    could set up a website or an email where persons can view the products or even order online.

    Additionally, the business can adopt more cost efficient methods of production so as to lower

    the cost of production which can eventually increase supply.

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    Best Taste Pastries is a small business operating in a monopolistic competition market structure. There

    are certain factors which currently affect the business supply in the market; competition cost of

    resources, technology and government taxes and subsidies. In this market there are many sellers who

    are price makers with differentiated products. The company also uses all of the factors of production,

    land, labour, capital and enterprise along with their rewards payments, rent, wages, interest and profit


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    Caribbean Examination Council. CAPE Economics Study Guide, Nelson Thornes, 2011

    Gopie, Patricia. Economics for CSEC Examinations, Macmillan, 2010

    Robert Wright Proprietor

    Cynthia Dacosta-Lawrence Employee

    Edna Dacres Employee

    Tracy-Ann Employee

    Ms Evans Employee
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