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Case Studies: Using Economic Theory to Improve Decision Making

The Impact of Covid-19 Restrictions on Tourism

With the impacts experienced by many business owners worldwide, the coronavirus pandemic will remain the most challenging thing they have ever faced compared to other epidemics that occurred. The golfing industry is no exception. The golf resort operators have had to make instant adjustments to their business strategies to remain relevant and open due to the rules and regulations changing almost daily. Having said that, the pandemic has also unlocked some unique opportunities for businesses.   The resorts that are willing to tap unlocked opportunities have been able to capitalize on the rapidly changing landscape in the golf industry, leading to more memberships leads, tee reservations, among others. Therefore, in this section of the paper, we will discuss the impacts of COVID-19 on the golf industry and some of the opportunities the golf resort might be able to take advantage of to deal with falling revenues/profit.

The coronavirus pandemic has really caused an increase in search volume for golf in the country. The increase in search volume is a result of the huge demand for golf. The coronavirus has mainly contributed to limiting golf activities, but golf has been considered safe to play. Most of the golf resorts never shut down, while other resorts in different industries were closed. Consequently, golf has been seen to be more attractive for those looking for a pastime, causing several casual golfers and non-golfers to dust off the clubs. Many of these people do not play very often or have not played golf for a long time. These are the people causing a significant increase in search for volume for golf; thus, the resort should be focusing on capturing them as life-long golfers. The resort can deal with the falling revenues by capturing this increased demand by setting up a Google Ads campaign and commit to it for several months (Nichola et al., 2020, 185). The diagram below attempts to illustrate the increasing volume for golf with the limited spaces available within the golf resort (Figure 1).

Figure 1: Increasing Volume for Golf with Limited Spaces.

The coronavirus pandemic has resulted in a number of limiting factors that have caused the resort to adjusting operations of golf. Most of the operational limitations have been enforced by local rules and regulations, as others have been put in place by the club to keep customers safe. Some golf resorts have facilities limited by the percentage of occupancy. Limited golf facilities have caused clubs to adjust the spacing in between tee times, which affects the supply when the demand is high. If the club is requiring a one cart per person rule, it may limit supply depending on the size of the resort cart fleet. The solution to such limitations in the times of COVID-19 is to attain the right balance between demand and supply. The resort can promote specials during the day when there is low demand. Alternatively, it can avoid limits by selling non-inventoried products such as gift cards, annual passes, and multi-round vouchers. The essential approach which can help falling revenues is the resort to stimulate customer loyalty. Additionally, demand outpacing supply opportunity by raising rates is a great move where resort can increase their rates upwards with no impact on rounds played.

Oil is a Special Case

Oil, as a vital energy source, has impacted significantly on global primary energy consumption. According to Kar (2017), in 2015, oil and gas contributed about thirty-eight-point eight percent of energy consumption globally. Oil as a finite resource will not last forever, resulting in scientists exploring other alternatives for energy resources. There are a number of factors influencing the fall in demand for oil in the country and worldwide. Among the key factors that will be addressed in this work are the OPEC influence, supply and demand impact, and oil production cost.

The primary influencer on oil price fluctuation, which affects oil demand in the world, is the Organization of Petroleum Exporting Countries (OPEC). According to the 2018 OPEC statistics (2019), it controls almost eighty percent of the global supply of oil reserves, with the bulk of oil reserves located in the middle east. The OPEC consortium decides production levels of oil in attaining worldwide demand, thus, affecting oil and gas prices through rising or reducing production. For instance, in 2014, the Organization of Petroleum Exporting Countries members promised to maintain oil price over a hundred U.S. dollars per container for the projected future. However, in the middle of the year, prices of the oil started to drop, falling from a hundred U.S. dollars a barrel to below fifty U.S. dollars a barrel. The primary source of low-priced oil in that occurrence was OPEC, when it declined to reduce oil production. As a cartel, OPEC member countries collectively agree on the quantity of oil to produce, impacting the ready supply and demand for crude oil directly in the global market. Thus, if OPEC members are discontented with the oil price, they can cut the oil supply to raise prices. However, no member country will want to decrease the supply, as this would mean decreased revenues (Yan, 2012, 39). In the spring of 2020, OPEC members had a dispute with Russia and Saudi Arabia, which are non-member resulting in an overflow of supply striking the market hard. The scenario attracted Donald Trump to negotiate so that production can be cut. However, it was not executed in time to uphold the prices of oil. Thus, OPEC member countries have a significant influence in determining the fall and rise of demand for oil.  The diagram below illustrates the fall in demand and surplus supply at high prices.

Prices of oil can change because of supply and demand principles, impacting the demand for oil. If the supply of oil surpasses the demand, there are fall prices, and the converse is similarly true when demand exceeds supply. In 2014, the lower demand for oil in China and Europe led to a considerable drop in oil prices, tied with OPEC supplying oil regularly (Baffes, Kose, Ohnsorge, & Stocker, 2015). Oil prices instantly falling was triggered by surplus supply, indicating low demand for oil. As demand and supply influence oil prices and demand; essentially, it is the futures of oil that decide oil prices and demand. Therefore, a futures contract for oil is a binding pact that offers a purchaser the right to buy a barrel of oil at a set price in the future. In the contract, the purchaser and the oil supplier are obliged to conclude the deal on a particular date.

Oil prices can rise or fall depending on production costs and storage, affecting the market’s oil demand. In the Middle East, the production cost of oil is comparatively cheap to extract, but it is costlier for other parts of the world regions (Jefferson, 2020, 101669). The oil prices could rise when the supply of cheap oil is finished. The period market experiences supply of cheap oil, which means the demand for oil has fallen. A drop in oil production surges oil prices and reduces general supply. Given the COVID-19 pandemic situation, the demand crisis has been created, and the huge amount of oil in reserves has encouraged countries producing oil and major oil producers to cut production. In this situation, companies who store oil are the only victors, which includes shipping companies with tankers who have been able to raise prices for oil storage. The diagram below tries to explain when there are high-cost production and storage that lead to a shortage of oil, thus an increase in oil prices.

Strategy for the Company going Forward

According to Mustafa (2016, 4), if oil markets and industry happen to be more positive in the concept of a peaking, or leveling growth of oil demand, then a variation in production and investment approaches is possible to occur for the private firms and in Organization of Petroleum Exporting Countries. This implies that in the next or two years, the oil market increases, the firms will have to think about delaying reserves’ production and development. The company also has to think if it still makes it meaningful to explore new resources at a high cost. Thus, the company must develop a value proposition that is coherent with its main products to attract investors and capital in the potential environment. The company can play a vital role in increasing margins and reducing costs with stable top-line production, repetition, standardization, manufacturing processes, and low-cost solutions. It will partially be guided by consolidation in the industry and comparatively by rivalry pressures and cooperation between its suppliers and industry. It is an essential change for a company geared towards tailor-made solutions to seek a competitive advantage. The company to show that it can maintain the value proposition for investors in the face of increasing insecurities, it will require to adopt strategies that can create value under any situation, involving minimizing product losses, shortening project cycle times, and reusing of inputs such as water, heat and steel and increasing recycling. Top firms are already moving in this course as such approaches align companies more closely with practical resolutions that will be appealing to the market.

How to Stop Teenage Drinking

According to Smyth, Kelly, & Cox (2011, 478), underage drinking of alcohol in the country is a big issue that requires proper attention and solution. The survey report displays a troublingly high level of alcohol drinking among fifteen- and sixteen-year-old students, many of whom are beginning to consume at very early stages. Most people believe the problem arises from the cheap alcohol availability in supermarkets, which teenagers easily access. Thus, to help combat the problem, the government has considered options such as controlling alcohol prices, imposing a tax on alcohol, increasing subsidy on non-alcoholic drinks, and formulating an education policy of visiting schools to teach children on the damages of excess alcohol.

Price control on alcohol: Pricing strategies are effective in decreasing cases of young children drinking and stop the incidences of drinking large volumes of alcohol. One of the most efficient interventions to decrease alcohol’s harmful use is through increasing the price of alcoholic beverages. (Sharma, Sinha, & Vandenberg, 2017, 149). The price control on alcohol strategy will help the government deal with underage drinking of alcohol. Through increasing prices, the demand for alcohol by teenagers fond of drinking will go down. However, the suppliers who are beneficiaries of the problem when teenagers buy volumes of alcoholic drinks will have experience a reduction in sales. Thus, with the low consumption of alcohol products, the supply will also reduce in the market as a result of low demand.

A tax on alcohol: By increasing excise taxes on alcoholic beverages, the strategy has proven to decrease the harmful use of alcohol and has provided the government with revenues to balance the economic costs of harmful use of alcohol. With an efficient and effective system for alcohol taxation coordinated by adequate tax collection and enforcement, the government will be able to curb the underage drinking problem and get enough revenues to help strengthen the policies. The option will have a positive impact on the government objectives, both economically and solving the problem. However, the strategy will cause a low supply of alcohol products and also low demand as taxation increases the prices.

A subsidy on non-alcoholic drinks: increasing the subsidy on the non-alcoholic drinks in the country will increase the supply of these products in the market. Reducing subsidies on alcoholics will decrease the supply of alcoholic drinks in the market. By increasing subsidies to non-alcoholic, the government will have to spend, which means an extra budget on the government. The strategy can help the government combat underage drinking only if subsidy on non-alcoholic is increased; at the same time, subsidy on alcoholic drinks must be decreased.

An education policy via advertising and school visits to spread the word on the damage excess alcohol can do: in this option, the government will also have to spend more through advertising and the school visits in the country. However, the option is the best one in helping the government ensure its objectives are accomplished. Through advertising and school visits that impart teenagers of the damages alcohol can cause, a good number of affected will be reached educated regarding the problem.

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Case Studies: Using Economic Theory to Improve Decision Making . (2021, December 09). Essay Writing . Retrieved December 05, 2022, from https://www.essay-writing.com/samples/case-studies-using-economic-theory-to-improve-decision-making/
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