The Fall in Demand for Goods in Asia Is Likely to Have Repercussions for Goods Markets in Europe - Essay Example

THE EFFECT OF A FALL IN THE DEMAND AND SUPPLY FOR ASIAN GOODS IN THE EUROPEAN MARKETS Introduction Business activities are often established on the concept of demand and supply. In this case, people engaging in the production and sale of goods and services need to develop an effective understanding of the demand and supply statistics in the market before launching their goods and services. For suppliers, the understanding of the demand factors is important so that they do not end up producing goods that may not be accepted in the market. By understanding demand factors, producers and suppliers of goods and services can produce goods that are commensurate to their particular needs. On the other hand, buyers are often fully aware of their particular needs, which influence their buying and other purchasing behaviour (Sloman & Sutcliffe 2003, 19). It is important to realize that people do not buy products for the sake of buying, rather, they make consideration based on prices offered, availability of substitutes and other important factors. In this case, it is important to understand that demand and supply are important factors that determine the success of goods and services produced by companies at both the micro and macro environments. This paper analyses the effect of the falling demand and supply of the Asian goods on the European markets. Demand In economic, demand can be described as satisfaction of a certain good or service relative to his income. In this understanding, demand is the grouping or listing of quantities that are demanded at each of the possible prices, they are willing to pay (Pindyck & Rubinfeld 2005, 36). Demand has a slight difference with the quantities demanded, in that the quantities demanded refer to the particular quantities of goods and services that buyers are willing and able to pay for at a certain period in time. In this case, when then prices of such products change, the quantities demanded changes in the same way. However, it does not often change the demand because demand is the actual list quantities that can be bought at different prices, and not the real or actual prices. Demand refers to the ability and willingness of a buyer to pay the price in order to acquire certain quantities of goods or services. It describes the particular amounts of products and services that buyers desire with respect to the various prices in the market (Cowen & Tabarrok 2013, 16). In this case, it is evident that the quantity demanded describes the amounts of products that buyers and willing and able to purchase at certain prices. Fig 1. The Demand curve (Kumar, 2009) Supply Supply, in economics, is often described as specific amount of goods and services that firms and other producers are will to sell at the market under the prevailing prices while other factors are held constant (Krugman & Wells 2006, 5). In most cases, supply is usually plotted as a supply curve, which shows the association of price to the kinds and types of products that those businesses and firms are willing and able to sell. Fig 2. The supply curve (McConnell & Barbiero, 2003) The law of supply indicates the quantities of products that can be sold to consumers at particular prices. However, it is important to note that unlike the law of demand, the supply curve often has a slope that is sloping upwards. In this case (Palmatier & Crum 2003, 25), when the prices of goods supplied are high, the quantities supplied to the market are also high. Most producers will prefer supplying goods at high prices in order to take advantage of the high prices at the market. At this time, they often make profits; conversely, they may not prefer supplying goods at low prices because of loses that may accompany such development. In this case, producers have to ensure that the make a good analysis and forecast of the markets before making decisions on when to offer products to the market and at what volumes. The demand and supply for Asian goods in European markets Asia is a region of geostrategic significance to the European markets. This region represents an important bridge to some major countries like China, Middle East as well as Afghanistan. These regions are very significant in reference to the imports being taken to markets in Europe (Kurzer 2001, 31). Four major countries in Asia have benefited immensely from the markets in Europe. These regions have been doing their level best in order to sustain their markets in Europe. The markets for organic products in the world has experienced a sustained growth in the past few decades, reaching a total value of about US$45 billion in 2007 as shown (Heydon & Woolcock, 2010, 24). In Asian and the large pacific: countries have taken advantage of this growing opportunity in the process of becoming major producers of the world’s organic products (Heydon & Woolcock, 2010, 24). Fig 3. Growing demand for organic foods to the EU from Asia (Heydon & Woolcock, 2010) The organisations of India’s BioFach as well as China’s BioFach are a big testimony to the growing demand of organic goods to the European markets. For instance, China invited FAO in order to present its analysis of the market for the organic products in Asia as well as the pacific during its international workshops for the market of organic products and its development. It is important to note that the demand for organic products in the European markets from Asia has increased by about 15 to 20 percent at each year in the past decade (Nelson 2009, 61). This sustained growth has been quite remarkable especially coming from a region where agriculture has to compete heavily with other natural resources like petroleum and related products. The European trade with countries in Asia has been increasing significantly, making it a significant and important trading partner in the whole world (Omoto 2012, 76). In fact, this market has accounted for up to one third of all the external trade. The exports that have been going to the European markets have concentrated only in few commodities because the region has a variety of resources that have to compete in order for the region to pick the best competitive products that can appeal to the markets in Europe. Additionally, the exports have also included transport equipment and machinery as well as other kinds of manufactured products including organic and sea foods. The graph below indicates the picture of the trade that has existed between the European Union markets and Asia. Fig 4. European union-Asia, trade in goods between 2011 and 2013 (Liu 2004) It is important to note that the industrialized markets in the European Unions have been important and dominant trading partners with countries in Asia for over various products. However, when we make an analysis of this trading relationship, we can arrive at a conclusion that relative sizes of the organic productions and organic consumptions in the Pacific and Asian markets are at an imbalance. In this case, pacific and Asian markets produces more products that what they can actually consume. However, this has been described as being dangerous move in the factors in the market may decline in the demand of goods being offered. From the graphic presentation below, Europe and North America remain to be the major markets for most of the products being produced, commanding about 97 percent of the organic retail sales, according to the figure relating to the 2007 market statistics. Fig 5. Estimated world market for organic products (Roos & Portland, 2010) Changes in supply and demand for Asian goods and its effects on EU markets In the recent past, the world has witnessed a change in the demand for the Asian goods; something that some analysis has said is bound to have an effect on the market in Europe. It is important to note that the European Union has been an important trading partner. In general, a fall in the demand and supply of goods and services means different things for both buyers and sellers. First, for the Asian markets, being the products, it means that they have to accept the losses that arise because they can only manage to sell few or no product at all. For the European Union, they have to seek for alternative ways in order to get the products that they have been used to getting from these markets. If it is the cost factors fueling the decline in the markets, then the European markets have to look for new trading partners that can offer those particular goods to reduce prices in order to drive the demands up. Just as pointed earlier, price is an important factor the influences the demand for goods and services in any economy. One of the important factors that may have largely influenced the decline in the prices could be the fall in the prices of oil on the international market. In this regard, it is important to understand that Asia is the world’s largest producer and exporter of oil and other kinds of petroleum products. In the same way, European countries have been the highest beneficiaries of these goods owing to their development and improvement markets. In addition, petroleum products have been facing many criticisms especially from Europe, owing to the ability to increase carbon emission sin the atmosphere, something that has increased global temperatures resulting in the problem of global warming. This has seen many developments in the process of devising various alternative forms of energy to supplement reliance on fossil fuels. It is important to note that the fall in the demand and supply of products in the European markets will have an effect on the equilibrium prices for the goods being offered. In general, the interaction of demand and supply leads to the development of the equilibrium prices, which is the prices that both the supplier and buyers are willing to sell and buy goods and services. In this case, the fall in demand and supply, according to the foregone discussion will reduce the equilibrium prices thus reducing the willingness of buyers to offer the products on sale. In a practical case, buyers often benefit from the reduced prices. In this case, the situation may present a case where by the market instabilities may have to push the prices upwards to the equilibrium point (Seifert 2000, 67). Countries in Asia may have to develop alternative goods that could attract the market that has once been so lucrative, placing the region as a major trading partner to most countries in Asia. However, it is important to understand that the economic meltdown in the European market has been quite instrumental in the decline of the market for the Asian products. This is something that has made most of the firms to look for alternative means of managing their business growth and development. One of the approaches has been to reduce expenditure on products that may increase the firms overall trading costs. Conclusion The importance of the European markets to the products from countries in Asia cannot be underestimated. In as much as some unavoidable factors may be contributing to the decline in the prospects of this market, much can still be made in order to restore the market that have been the cornerstone to the rapid growth and expansion of most of the economies of countries in Asia like China (Oxenstierna & Tynkkynen 2014, 68). In order to remain competitive, the Asian countries have a responsibility to look for alternative markets so that they can still manufactured and sell their organic products as well as other manufactured products and machinery. Bibliography Cowen, T., & Tabarrok, A. 2013. Modern principles: Microeconomics (2nd ed.). Worth Publisher, New York, NY. Heydon, K., & Woolcock, S. 2009. The rise of bilateralism comparing American, European, and Asian approaches to preferential trade agreements. United Nations University Press, Tokyo. Krugman, P., & Wells, R. 2006. Economics. Worth, New York. Kumar, B. 2009. Modern microeconomics. Global Professional, Cranbrook. 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