Activity 3.2 - Elasticity

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1 Gramag Truck Interior Systems: Elasticity David R. Bailey Department of Computer Science, Tiffin University ECO222_201 Principles of Microeconomics Sue Reser November 6, 2022

2 The business chosen for study is Gramag Truck Interior Systems located in London, OH. Gramag produces seats for the heavy truck manufacturer Paccar headquartered in Bellevue, Washington. According to Wikipedia (2022), Paccar is an American Fortune 500 company and one of the largest manufacturers of medium- and heavy-duty trucks in the world. The article continues and shares the company was founded in 1905 with total revenue for 2021 reaching $23.52 billion. Paccar’s 2021 Annual Report (2022) says the company accounted for 29.2% of Class 8 heavy-duty truck sales in the U.S. and Canada. Gramag designs and manufactures a tiered offering of seat systems for the heavy-duty truck industry. This allows them to provide the correct level of support and comfort for varied applications. The entry-level 701 model seat provides a system that focuses on minimizing pressure points, noise, and vibration while maximizing lateral stability. The model 702 seat provides this same detail and adds a dual lumbar support system. The model 703 seat system utilizes all these features and adds triple lumbar support as well as heating and cooling capabilities. Because of Gramag’s offering flexibility, manufacturers can choose the product that meets their needs and customer requirements. Demand for heavy-duty trucks is currently very high. Each day the news reports of supply issues throughout the economy. Many of those issues relate to not having enough OTR (over-the-road) capacity for companies trying to move freight around the country. Backups and delays at ports around the nation have been common in recent years and do not appear to be going away soon. According to Perry (2021), Consumer demand in the U.S. remains strong with online sales in 2021 growing by 300%. This creates demand for delivery services for all those

3 sales which helps to drive demand for the trucks needed to haul the goods purchased. Additionally, according to Custom Truck One Source (2022), new government regulations go into effect in 2024 which require new heavy-duty trucks manufactured to meet increased emissions standards. This is helping to drive demand as consumers try to replace their fleets before these regulations take effect. The heavy truck industry is volatile and requires a great deal of planning and organizational detail to ensure production schedules are accurate and commitments are met. For Gramag and companies that supply heavy-duty truck manufacturers like Paccar, planning and forecasting future demand is a vital operation of leadership. By using the ideas of elasticity, they can better estimate the change in demand and prepare properly for future production. The seat systems Gramag produces, and the heavy-duty trucks Paccar manufactures are complimentary. These products are used together and the demand for seats is dependent on the demand for trucks. In the short run, there aren’t readily available substitutes translating to an inelastic association. As you narrowly define the market and consider only ergonomically supportive products the association continues to show an inelastic correlation. By changing the time horizon and forecasting 3 to 5 years the interrelationship between trucks and the seats needed to produce them becomes more elastic as the truck manufacturer can source other options.

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4 References Gramag. (2022). About. Https://www.gramag.com/about/ Mankiw, N.G. (2021). Principles of Microeconomics. Engage Learning. Paccar. (2022). Paccar 2021 Annual Report . Retrieved from https://www.paccar.com/media/3205/paccar-2021-annual-report.pdf Paccar. (2022, November 5). In Wikipedia. https://en.wikipedia.org/w/index.php? title=Paccar&oldid=1120103094 Perry, N. (2021, December 21). Brick-and-Mortar Stores vs. Online Store Statistics [2022]. Fundera by nerdwallett. https://www.fundera.com/resources/brick-and-mortar-vs-online- statistics

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