‘Empty cargo ships hit record high’
‘Pump prices fall for the first time this year’
These are the headlines that have been bombarding the front pages of the newspapers for the last months. Why? As the financial crisis is fast worsening, quantity demanded for goods is falling.
Firstly, what is demand? Demand is defined as the quantity of a good or service that consumers are willing and able to purchase at a given time in a given time period, ceteris paribus. Quantity demanded has many factors affecting it. There is the expectations of the consumers, income, prices of substitutes, and tastes and preferences. These headlines that show a decrease in quantity demanded and this has of course been affected by the financial crisis we are facing.
The expectations of the future would be that the deepening financial crisis would result in the losses of jobs or downgrading of pay. This results in people consuming less due to their fear for what might happen in the near future. Offices are relocated to a less expensive building or are downsized to save costs. There is no longer a demand for goods so it is not profitable to import and export. More and more people try to economise by getting rid of their fuel guzzling cars and opt for more green ones or even public transport which results in the quantity demanded for fuel to decrease. This would also reflect the income of the people. Many have been retrenched in this financial dip and as a result have a smaller income and this results in the lower demand for goods.
Prices of substitutes also affect what these headlines say. For example, prices of substitutes such as supermarket own brands may be cheaper and people would want to buy them instead to save money and this thus lowers the necessity for imports. Today, in the newspapers, I read that this economic downturn has resulted in the flourishing of budget shops selling bargain goods. This would be a classic example of how the price of substitutes affects the demand of another good. Fuel alternatives and public transport would be cheaper and thus reduce the demand for fuel resulting in the price drop.
I think we will be seeing much more articles with headlines similar to those we have just seen and one does not know whether to laugh or cry....
In my opinion,this is indeed written and expressed very well.The starting was very good as it linked to what we read in newspapers everyday.The headlines are very closely linked to what we learn in economics.The explanation given for the headlines was also fantastic.
ReplyDeleteThe definition given for demand was well-defined and to the point.The factors affecting demand were also very well-explained.I feel that there could have been some elaboration on supply and that there could have been examples given on how different demand and supply are.
On the whole,it is a very good piece of work.Good Job!
One doesn't know where to laugh or cry...? I guess that depends on which side you are on. I suppose if I were someone that runs a budget shop, I'd say yay! But if I was running a store selling high-end models I'll be biting my fingernails in anxiety. I think you are absolutely right when you write expectations as one of the major stumbling blocks to increase consumption - nobody really knows when the financial crisis will end. I mean, I am looking to buy a camera and I'm tightening my purse strings in anticipation of prices to keep falling!
ReplyDeleteVery interesting post. and an even more interesting start. unique in a way she goes in and out of definitions to describing it in relation to real life. Nice use of headlines to aid the structure of your post
ReplyDeleteI'm not quite sure what i comment is so i hope im doing it right..
ReplyDeletethanks munisha and Dljr.:)
Miss Vyna:1 cannon cameras are the best in the world.
2. with regards to my statement one doesn't know whether to laugh or cry, i meant it in two ways. One way is yes, the literal sense where a budget shop owner would be pretty pleased at the way business is going considering the current economic climate and yes, a small shop selling slightly higher end goods would indeed suffer and they would not be happy campers.
I also meant this in another sense. The current situation is so absolutely dire. Seeing people in the headlines going 'broke' or 'bankrupt' is now normal. It is almost accepted by those still in a relatively comfortable position as a fact of life. A close friend of my parents and his family lost everything in the Bernard Madoff hedgefund scandal. His 80 year old father has to go back to work from retirement as a result. I'm not saying that this is alright. I'm not saying that this situation is so dire and the fact that it is just an every day occurrence just makes it even worse. So overall, what i'm saying is that this situation is so bad, we don't know if we should laugh at ourselves for getting into this terrible situation and how it is messing with our lives or if we should cry for the losses we have had......