Prices of Raw Materials Increase in the cost of raw materials boosts the cost of production since raw materials are the main input in the production process which forms a part of the direct outcomes to a firm. At the initial stage, the growth of the costs in raw materials will compel us to increase the unit price our commodities because supply is inelastic in the short run. Due to increase in prices of the commodity, the demand for the product will reduce if it is a normal good, it will lead to reduction in the goods produced to meet the new demand. It is important to note that if the elasticity of demand for the product is higher, the increase in revenue, due to growth in price of the commodity, can be far much lower than the loss in revenue due to decrease in demand, and in this case, we might choose to dig deep into our profits (Mankiw 2011). The graph below shows a demand curve that is high price elastic, and any change in price causes a more than equal decline in demand. In a case like this firms are better if they explore options than changing price. Appreciation of the Local Currency Appreciation of the local currency means that foreigners will require more of their money for one pound, which means that exports become expensive in the foreign market. These will decrease the amount of goods demanded in the foreign markets, and therefore, the exports will reduce (Ferrington 2006). However, the decrease in demand depends on the price elasticity of demand for the commodities in the foreign market. If the products’ price elasticity is high, then the fall in demand will be significant, and this will reduce the earnings while increasing costs of holding high inventories, hence our firm might be forced to lower its supply. From the figure above, appreciation of the pound causes a shift in the demand curve from D1 to D2, thus, reducing quantity demanded from Q1 to Q2. This may make the firm to focus more on the internal market as opposed to the external market in order to maintain its profit margin. Increase in Product Popularity When popularity of a commodity increases, demand for the product boosts as well which shifts the demand curve upwards. The firm producing the commodity may be forced to raise the price of the good since supply is inelastic in the short run (Tucker 2008). But we are aiming at increasing profits in the future, we will acquire the required inputs to increase production, and this will lead to increase in quantity supplied with time. However, before deciding to enlarge the output, the reasons for increase in demand should be looked into to ascertain if the demand will still be high in the future. The graph below shows a shift in demand curve rightwards from D1 to D2 due to increase in popularity which augments the quantity demanded at any given price. The firm will be forced to raise the price of the commodity to cater for the excess demand. Effects of Economic Downturn in Export Markets If our major export market experiences an economic recession, then the purchasing power of the people in that market reduces, therefore, decreasing the demand for the firm’s commodities. This will force us to reduce prices in order to boost demand, but the decre