FREE ESSAY ON ECONOMIC NATURALIST

ECONOMIC NATURALIST

GRADUATE SCHOOL
UNIVERSITI UTARA MALAYSIA
MANAGERIAL ECONOMICS
(EG 5013)
PROJECT PAPER
ON 
ECONOMIC NATURALIST:
WHY COMPANY GIVES OUT COMPLIMENTARY CALENDARS?
MASTER IN BUSINESS ADMINISTRATION
OCTOBER 1999/2000 SESSION
PREPARED BY : 
SUKRI B RADZALI (MATRIX NO. 81420)
PREPARED FOR:
EN. SHAMSUL BAHRAIN RAWI
SCHOOLOF ECONOMICS, UUM
DATE:
24TH DEC. 1999
Introduction
We always associate the month of December with flood season especially in Kelantan &
Terengganu. December also normally become a vacation period for most of Malaysians as
this time of the year coincide with school holiday and people are finishing off their
annual leaves to be with their family. You might be wondering what December has to do
with the economy? How about calendar? People are normally looking for calendar for
incoming year in December. Many companies in Malaysia are producing calendars to be given
out to their customers, official contacts and suppliers. We can find so many types of
calendars form small and simple to big and colorful and quite expensive too. Why
companies are producing calendars? Why they have to incur an additional unnecessary
expenses? Is it part of the advertising expenses? What are the expected benefits? They do
not sell the calendars!! Of course, they are not going to get some income out of this
activity. These are some of the issues that we are trying to explore and answer. We will
relate the issues into some of the economic theories. There must be some economic reasons
for companies to give out complementary calendars every end of the year.
Theory of the Firm
A firm is an organization that combines resources for the purposes of producing goods
and/or services for sale. Firms exist because it would be very inefficient and costly for
entrepreneurs to enter into and enforce contracts with workers and owners of capital,
land, and other resources for each separate step of the production and process.
Calendars play some roles in any firm. Generally, firms produce calendars as part of
their promotion for its products and the company itself. Normally, the calendars are
printed with company's particulars such as company's logo, name, address, and contact
numbers. It also has the information and pictures of products the company produce. The
pictures are normally in full color and very attractive. These elements are very
important in projection the good image and can be one of the marketing strategies for the
company. 
The calendars will play a role as part of the company's advertising effort in promoting
its products and services. Normally, calendars are given out as a complimentary to
company's customer, suppliers, business contacts and government authorities. Sometime,
people need to buy something from the store in order to get a calendar. Believe it or not
that there are people who buy goods and products just to get the calendar. These
consumers are influenced by the year end discounts and the just for the sake of calendar
that the company offers. But as far as the company is concerned, the above will increase
public awareness of its company and products which will later have a positive effect on
its sale and profit. Of course, the company will incur some additional expenses in
producing calendars in short term but they will gain in long term. As such, companies are
willing to sacrifice short-term profits for the sake of increasing future or long-term
profits. The same goes to other expenditures such as research & development, and new
capital equipment. These require a very high initial investment and the return may be
realized in five or ten years. 
Originally, the theory of the firm was based on the assumption that the goal or objective
of the firm was to maximize current or short-term profits but, the theory of the firm now
postulates that the primary goal or objective of the firm is to maximize the wealth or
value of the firm. This is given by the present value of all expected future profits of
the firm. Future profits must be discounted to the present because a ringgit of profit in
the future is worth less than a ringgit of profit today. As such, companies are willing
to invest in producing calendars as they know that they will gain profit in long-term.
Talking about, there are two types of profit which are business profit and economic
profit. Business profit refers to the revenue of the firm minus the explicit cost or
accounting cost of the firm. The explicits cost are the actual out-of-pocket expenditures
of the firm to purchase or hire the inputs it requires in production. While the economic
profit equals the revenue of the firm minus its explicit costs and implicit costs.
Implicit cost refers to the value of the inputs owned and used by the firm in its own
production processes.
Law of Demand
As mentioned earlier, calendars act as a part of advertising channel for a company. With
the right combination of distribution strategies, design, and concepts; the message on
the company and its products will reach the consumer and it stick to their mind as
calendars are hanged in our living room for the whole year. In long term, the demand for
the product is increased. It is shown by a rightward shift of the demand curve for a
product. 
Before, we explain further on shift of the demand curve, let's look at the basic law of
the demand. The law says that as the price of the commodity increase, the quantity
demanded decrease and as the price of the commodity decrease, the quantity demanded
increase. This inverse relationship between the price of the commodity and the quantity
demanded per time period is referred to as the law of demand. The demand function faced
by the firm is the relationship that identifies the determinants of the demands for a
commodity faced by the firm. These include the price of the commodity, consumer's income,
the price of related commodities, tastes, advertising, and other forces that are specific
to the particular industry and firm. The consumer demand theory postulates that the
quantity demanded of a commodity per time period increase with the reduction in its
price, increase in consumer's income, increase in the price of substitutes and a
reduction in the price of complementary commodities, and increased taste for the
commodity. On the other hand, the quantity demanded declines with the opposite changes. 
Now, let's go back the issue of rightward move of a demand curve. If any of the things
held constant in drawing the demand curve change, the entire demand curve shifts to the
right so that the consumer demands more of the commodity at each commodity price if the
consumer's income increase, the price of substitute commodity increase or the price of a
complementary commodity falls, and if the consumer's taste for the commodity increase. An
increase in expenditures on calendars could also lead to an increase in demand of the
product of the company and contribute to the rightward shift of the demand curve. 
Regression Analysis
In other words, we could say that the expenditures on calendars could also contribute to
the increase in the demand of the product or there is a relationship between the ringgit
spent on calendars and the quantity demanded of particular product. How significance is
the relationship is really depending on some formula and data to come up with t value of
the hypothesis.
The above can be shown as a regression model as follows :-
Q = a - b1 P + b2Y + b3S + b4T + b5C
(5.12) (3.24) (4.56) (3.96) (4.25)
R2 = 0.85
The t values which are in parentheses below the estimated slope coefficient and the R2
value are the assumption figures for the purpose of discussion. The value of a is the
vertical intercept and b1, b2, b3, b4, and b5 are the values of the slope coefficient of
the regression line. The above values can be determined by using some formulas and past
data on Q, P, Y, T, and C.
Where Q = Quantity product demanded
P = Price of the product
Y = Consumer's income
S = Price of substitute's product
T = Consumer's taste
A = Expenditure on calendars
From the above regression model, we can see that the quantity demanded (Q) will increase
as the is a reduction in price of the product (P), increase in consumer's income (Y),
increase in price of substitute's product, increase in consumer's taste, and increase in
expenditure on calendars. Using the given t values, we can compare it with table t values
at certain percentage level, normally at 5 percent level of significance. If the given
(calculated) t values are higher than the table values, we can accept the hypothesis that
there are statistically some significant relationship between Q (quantity demanded) and
other determinants of Q which are P, Y, S, T, and A. The coefficient of determination
(R2) of 0.85 shows that 85 percent of the total variation or dispersion in quantity
demanded (Q) is explained by the variation in the independents variables which are the
price of product, consumer's income, price of substitute's product, consumer's taste, and
the total expenditure on calendars. 
Supply and Production Theory
We have mentioned on the relationship on the total spending on calendars which have a
positive effect on the quantity demanded for a particular product. The more amount put on
producing the calendar, we could expect that there will be more product demanded. As a
result, company should response by producing more of their product. There will be more
products supplied to the market. Theory of supply shows the amount of commodity that
sellers would offer for sale at various prices. As the price of the product increased,
the quantity supplied increase. With the increase in efficiency, reduction in resource
price, and improvement in technology could cause the supply curve to the right.