Question

Catalogue companies are committed to selling at the prices printed in their catalogues. If a catalogue company finds its inventory of sweaters rising, what does that tell you about the demand for sweaters? Was it unexpectedly high, unexpectedly low, or as expected? If the company could change the price of sweaters, would it raise the price, lower the price, or keep the price the same? Given that the company cannot change the price of sweaters, consider the number of sweaters it orders each month from the company that makes its sweaters. If inventories become very high, will the catalogue company increase, decrease, or keep orders the same? Given what the catalogue company does with its orders, what is likely to happen to employment and output at the sweater manufacturer? Give reasons justifying your answers.

Answer 1

Answer:

The demand for sweaters is low. If it could, the company would reduce the price. The company will reduce its orders. The employment and output at sweater manufacturers will decline.

Explanation:

An increase in the inventory of sweaters implies that the demand for sweaters is low and instead of getting sold, the sweaters are added into inventory.

If it could, the company would reduce the price of sweaters to increase its demand.

But since the company cannot reduce price it will instead reduce the orders to produce sweaters if inventory becomes very high.

As the order is reduced, the sweater manufacturers will produce fewer sweaters. This will cause a reduction in employment and output at sweater manufacturers.