Question 1
Price elasticity of demand for first-class postage stamps in 1980
The demand for first-class postage stamps in the United States of America was price inelastic in 1980. This is because there were no few or no alternatives to sending greetings and messages. Lack of adequate substitutes led to lower price elasticity of demand since consumers could not easily switch consumption when prices change.
Reasons for the change in price elasticity
The price elasticity has changed significantly over the past 30 years. The current demand for the same service is relatively price elastic. This is due to the advancement in technological innovations in the transport and communication sectors within the United States of America. With the development of the electronic mail system, few people use the postal services and the few who do only use it for formal purposes. This technological advancement in methods of sending mail has to a large extent initiated this change in price elasticity of the first class postage stamps. Technological progress has increased the number of substitutes to first-class postage stamps thus leading to an increase in the price elasticity of demand (Mankiw, 2014). Since consumers have several alternatives, they are more sensitive to price changes than they were in 1980.
Question 2
USPS should decrease the price of first-class postal stamps to increase its revenue. Price and demand have an inverse relationship. Thus, a reduction in price causes a rise in quantity demanded and total revenue. The current demand for postal stamps is price elastic. This implies a small change in price causes a substantial change in quantity demanded. Therefore, if USPS cuts the price of postal stamps, the increase in sales will be more than proportionate to the decrease in price hence total revenue will increase. If USPS increases the price, there will be a fall in total revenue since the decrease in sales will be more than proportionate to the increase in price (Mankiw, 2014).
Question 3
USPS’s financial situation
The United States Postal Services’ profits have been on the downward trend since 2011 to the end of 2015. The losses recorded have been as follows$5.1 billion in 2011, $15.9 billion in 2012, $5 billion in 2013, $5.5 billion in 2014 and $5.1 billion in 2015. The worst loss was experienced by the United States Postal services in the financial year ended 2011. However, the company has a profit projection of $68 billion by the year 2020. The following can be summarized as shown below.
Question 4
Recommendations to improve the financial situation
A reduction in postal charges could boost sales and improve the financial status of USPS. It should also diversify its services and invest in technological improvements. It should introduce modern methods to adapt to technological changes. Besides, it can cut labor costs by reviewing wages, automating its operations and reforming its human resource policies.
Labor costs
High labor cost is one of the greatest challenges facing USPS (Cagw.org, 2016). It is estimated that labor costs compromise over 78% of the total operating costs for USPS (Postalreporter.com, 2016).
How to address the issues
Unionized employees are difficult to deal with especially in implementing cost reduction initiatives. USPS should engage the representatives in such decisions to reduce resistance. Besides, it should explain to union representatives the rationale behind any decision regarding employees before implementing such decisions.
Question 5
What would it mean to privatize USPS?
If the United States postal services were to be privatized, then the profits of the organization shall be maximized. This is because the ownership shall no longer be of the government which is a non-profit making organization. The management of USPS shall change to include privately contracted managers and board of governors. And these shall drive the organization out of its current financial crises. There will also arise competition between United States Postal Services and other postal organizations such as FedEx, and this would encourage improvement in service offering by the organization and management techniques that would keep them competitive in the global postal market.
Privatizing of USPS
USPS should not be privatized but rather the funding allocated to its services should be increased and better labor policies put in place. Privatization of the sector will cause a substantial rise in the stamp charge which should not be the case. The organization should be even given more room to do business in the county postal offices.
Question 6
United States Postal Strike of 1970
This strike was caused by a feeling by the workers that their wages were very low, they had poor job benefits, and they also felt that the postal offices offered an unhealthy and unsafe working condition.
The strike crippled the nation’s mail delivery system. As a result, the stock market fell since it extensively relied on the postal sector. The businesses that relied on USPS to deliver their capital for inventories were crippled businesswise by this strike. However, the key impact of the strike was the signing of the Postal Reorganization Act of 1970 which gave the USPS the monopoly of mail delivery within America. Therefore, granting employees the right to organize, picket and strike are not necessary as it might have further devastating effects upon the American economy.
References
Cagw.org. (2016). USPS Labor Woes: A Greek Tragedy | Citizens Against Government Waste. [online] Available at: http://cagw.org/media/wastewatcher/usps-labor-woes-greek-tragedy [Accessed 14 Mar. 2016].
Mankiw, N. (2014). Principles of macroeconomics. New York: Cengage Learning.
Postalreporter.com. (2016). The Relative Size of Labor Costs of UPS, FedEX and USPS by Workplace Economics. [online] Available at: http://www.postalreporter.com/labor.htm [Accessed 14 Mar. 2016].
