Annie Chan (2)
Cindy Wong (35)
F.4C
Economic News Report
Brief description of the article
Sony Corporation recorded a 23 percent fall in annual net profit yesterday after a charge for
restructuring its electronic unit. Despite a drop in earnings, Sony Corporation predict there will be an
increase in earnings this year since there is strong demand for new home-entertainment products. Also,
since Sony has started the earning season in Japan, it also forecast that there would be an increase in
profits since there is a large demand for flat-screen televisions and other digital –electronic goods.
Sony, which plans to buy United States film studio, with two investment firms for about US $5
billion, forecast there would be a rise in net profit up to 13 percent next year.
Analysis
Sony Corporation of Hong Kong Limited is a limited company. Owners of Sony have limited
liability which is limited to the capital they have invested in the company. Their personal properties
will not be used to pay off any further debts of the company. Assets of Sony are not assets of owners.
There is separated legal status. Also, ownership and management of the company are separated. Hence,
Sony has a lasting continuity, if one of the owners dies or withdraw, the running of Sony will not be
affected.
Human resources, such as labour is used in the production of Sony products. Besides, working
capital such as metals and plastics are used in production process. Their physical forms change during
the production process. On the other hand, entrepreneurs are involved. Shareholders of Sony are
entrepreneurs. The entrepreneur has to bear risk and uncertainty of production. The return of
entrepreneur is determined after production and it is uncertain. Moreover, the entrepreneur makes
decisions on what goods to produce, how to produce and how to sell them, so as to produce them at
the lowest cost.
The electronic goods produced by Sony are economic goods, they are insufficient to satisfy all
people’s wants, and more of them are preferred. There is cost of production of them and people have to
pay electricity or give up something to get it. Besides, they are superior goods as an increase in
people’s income leads to an increase in demand for them, vice versa. Some products of Sony such as
television set can be consumer good when using at home for satisfaction, and can be capital good
when using at school or restaurant for further production.
The assembly processes of Sony’s products involve secondary production. It turns raw materials
such as metals and plastics into semi-finished products for further production and finished products for
consumption. In addition, tertiary production is involved when the salesman provide services to the
consumers.
Explanation
Elasticity of Demand
P
From the newscut, since there is an increase in
price (P1=>P2), and resulted a drop in earnings,
so we can conclude that people’s demand for
Sony products are elastic. (Ed>1)
Since there is an increase in price (P1=>P2),
percentage decrease in quantity demanded is
larger than the percentage increase in price. Loss
is greater than gain, resulted in a drop in sales
revenue.
Since the percentage change in quantity
S2
S1
P2
Gain
P1
mid-pt
Lost
D1
0
Q2
Q1
Sony products
Q
demanded is larger than that of price, so the
demand for Sony product is elastic. (Ed>1)
Demand for Sony products are elastic because
Sony products are luxury goods, they are not
necessities for daily need.
Effect of price on its substitutes
P
S1
P2
P1
D2
D1
0
Q1
Q2
Sharp products
Q
Since there is an increase in price for Sony
products, so customer will go to buy the
products in other brands instead. Eg. Sharp.
Therefore, Sony and Sharp are substitutes.
So, the demand for Sharp products will
increase. Demand curve shift to the right
(D1=>D2). Therefore, the price of Sharp
product will increase (P1=>P2) and quantity
transacted also increase (Q1=>Q2).
Forecast of earnings in Sony Corporation
P
Since Sony predict there is a strong
S1
P2
P1
D2
D1
0
Q1
Q2
Q
Sony products (home-entertainment)
demand for home-entertainment products in
the
future,
so
the
demand
for
home-entertainment will increase. Demand
curve shift to the right (D1=>D2).
Hence, the price of home-entertainment
products will increase (P1=>P2) and the
quantity transacted also increase (Q1=>Q2),
resulted in an increase in earnings.