part 1:

Increase in traffics is ultimately borne by the final consumer it is a direct tax but the final

consumer has to bear is which increases in price. There is a rule of economics which is call price

elasticity. If tariffs are imposed on goods that are needed to save lives such as life-saving drugs.

The demand for such goods will not decrease with an increase in price because the demand is

perfectly inelastic. But when we talk about luxury items the scenario is different. An increase in

tariffs of luxury items such as iPhones and other smartphones will cause a decline in the demand

for it. As the price elasticity for luxury items is greater than 1. This means the demand is highly

sensitive for luxury items.US imposed 25% tariff on $50 billion worth of imported Chinese

goods. This kind of tariff is called ad Valorem tariff which means tariff is imposed on the value

of the goods imported propositionally. The main purpose of imposing tariffs is to secure the

domestic market or encourage the domestic producer to sell more and earn more profits. The

tariffs imposed by the US against China are the result of tug-of-war and China has also imposed

tariffs against the US of 460 million in May 2019(Uzialko,2020). Imposing tariffs will reduce the

interdependency of both countries.

“When elephants dance, everybody gets shaken up”

The imposition of tariffs reduces the disposable income or the real income of the consumers.

When we talk about an increase in prices of necessities, people will look for an alternative of that

product or a place from where they can get necessary grocery items at subsidized rates. The

stores have to increase the price of the goods because of the increase in the cost of the factor of

production.
Part 2:

The store has focused on optimal utilization of available resource which includes human

resources as well. The stores have to lay-off a couple of their employees to manage the cash

flows. Focus on the necessary items than the luxury items. People will buy groceries no matter

whatsoever. Opening the shop for long hours can help in recovering the loss. The model of Ikea

furniture can help to solve the problem. Their target audience is low income or middle-class

families who require classy furniture at affordable prices. The Ikea stores are open for 24 hours

as the people belonging to low-income groups are busy in the morning doing their jobs. Plus they

are also offering an auxiliary facility that is baby sitters in their store because low-income groups

cannot afford a nanny and they might bring their kids along. The store is providing furniture that

can be easily assembled by the consumer which means they are saving their assembly cost as

well as the delivery cost. They don’t deliver their products. But they will provide a railing for

your car to carry the furniture. The store is making crazy profits. The business model is

sustainable. If the stores do not want to increase the price of the goods then the auxiliary services

attacked to the sales must be discontinued to reduce cost, which may include additional salesmen

to put the grocery items in the car. The cart must be allowed to be taken in the parking area. As

far as luxury items are concerned including cell phones, laptops. Their prices should be increased

according to the proportionate tariffs. But selling luxury items at a lower price will result in more

losses. But try to keep it a bit lower than the competitor setting just adjacent to your store. Just to

grab more footfall this will ultimately increase the profits. The manger of every department

should keep track of the break-even point. As soon the break-even is achieved sales and

discounts should be offered to increase the footfall and sales. The quality of the products should
be maintained which will ultimately result in positive word-of-mouth. As far as fine is concerned

according to the statement given by Trump: tariffs will be imposed on wine imported from

France(Blitzer, 2019). Only limited stock of French wine will serve best for most of the stores.

After analyzing the behavior of sales after the increase in price, the optimal level of stock can be

maintained from the following month.

Reference:

Uzialko, (2020). Surprising ways Tariffs Impact Small Business. Business News Daily. Retrieved

from https://www.businessnewsdaily.com/10931-small-business-tariff-impact.html

Blitzer, R. (2019) ‘White House: Trump’s “second thoughts” on China trade war “greatly

misinterpreted”’, Fox News. Fox News.