Economics: Trends In Consumption Patterns - Research Paper Example

Running head: Trends in Consumption Patterns Topics: A Critique of the Trends in Consumption Patterns Written in APA style For many years there has been no standard agreement as to the most standard definition of economics. However, within the scope of this essay there will be an attempt to limit the standard definition to touch very relevant aspects of the question whilst leaving aside the aspects that do not have a direct bearing to the central focus of this essay. In general terms economics as a subject is among the list of numerous subjects in the social sciences that deals with the question of the numerous choices that people have to make in the phase of scarce resources whilst achieving the most optimum satisfaction from these choices. In other words, people are inherently wrought with choice dilemmas considering the fact that there are limited options within which to make these choices. It therefore goes without saying that a leading issue within the scope of economics is “scarcity,” “resources,” and “choices.” Broadly speaking the subject is spread between two main branches namely microeconomics and macroeconomics. The baseline that must be stressed is that irrespective of whether the economic question being dealt with is within the scope of microeconomics or macroeconomics it still has to deal with the efficient allocation of scarce resources to deal with unlimited wants. As stated in the foregoing paragraph, microeconomics is a branch of economics that directly deals with the study of how individuals and their households as well as specific firms carry out the process of allocating their scarce resources in a real market environment. It should be noted that in the market situation the main players are suppliers of goods and services on the one hand and then demanders of the goods and services supplied on the other hand. Microeconomics therefore centers on the reaction of suppliers and demanders in a typical market and how each of these groups are able to meet each other at equilibrium in a market situation. It therefore leads to the theories of the laws of demand and supply and how each of these laws impact the price level on the market. It should also be understood that price is an important barometer in gauging activities on the market and how this relates to demanders and suppliers of goods and services that are offered on the market. A leading concern of microeconomic analysis has to do with the dynamics within the market that eventually leads to the establishment of relative prices in the phase of the unlimited wants but scarce resources to meet these wants. Of course the resources also stand the chance of being used in alternative capacities yet meeting the satisfactory needs of the consumer. In doing this, it also acknowledges the tendency of a market to completely fail to meet the desired efficiency results. The contemporary market economy is regulated and structured along the lines of the price factor vis-à-vis what consumers are willing to pay for at what price for the various goods and services available. Whilst in the same vein the producing firms base their production targets on the level of price that they are willing to make available to consumers. Consequently, price becomes the most significant factor in determining the level of demand and supply of goods and services that will be available on the market. To this end, it will be prudent to define these concepts individually as a way of better forming our understanding of the subject matter. In conventional terms, the law of demand says that all things being equal the higher the price of a good or service the lower the quantity demanded. The relationship therefore between price and quantity demanded is inversely related. In this context the law of supply also states that all things being equal the higher the price the higher the quantity supplied and the lower the price the lower the quantity supplied. By inference, the price and quantity supplied are linked by a direct relationship in which both variables rise and fall together unlike the law of demand. In what follows there will be an in-depth analysis of both the factors of demand and supply. To begin with, the concept of demand will be brought to the fore as part of discussing all the relevant issues contained in it. Demand in its absolute form is a prime factor of a number of influences such as the ability of the consumer to purchase the goods and services supplied by firms as well as the willingness to actually acquire these goods and services on offer by firms. Of course both the willingness and the ability to acquire the goods and services offered by firms is also a direct factor of time. Time carries a significant bearing on all the questions relating to demand. The current economic and financial crisis that has besieged the American economy begun to show early indications in the year 2007, when the economy underwent an abysmal growth rate of 2.2 percent. This figure is a reflection of 3 percent growth from the 2006 projection. This was closely followed by the rapid uneasiness in the housing market that is reported to have further worsened the gloomy state of economic growth during the 2007 financial year. Getting to the end of August 2007, the height in speculation about the possible aftermath of the financial turbulence created fertile ground for the hardening in lending regulations by the financial institutions, consequently general consumption and business investments begun to experience a progressive nose diving trend. Then came the hike in the price of global crude oil prices that brought about a twin effect of increased inflation to a projected 3.4 percent and the resultant fall in general consumption which threatened an already fragile situation. Meanwhile, the economy enjoyed some level of comfort measured triggered by the gains in net export. The growth in total net export enabled the economic gears to be at par with the continuous depreciation of the US dollar against its major trading partners. However, the odds were relatively stronger which created the leeway for the economic gloom to enter into the year 2008. It was this period that heralded the progressive fall in general housing prices coupled with the rigidity in credit accessibility inevitably there was a decline in investments in the housing industry The weak performance of the housing market begun to trickle into the labor market because of speculations that saddled the fate of the banking and financial institutions; part of the reasons included the high possibility of major investment banks such as Bear Stearns and a host of others filling for bankruptcy. At this point the major concern of policy makers was centered on the possible implications of this recession on the long term sustainability of the industry and its innumerable players. Historically, most of the recessions experienced in the US economy were immediately followed by radical recoveries that were also self-regulatory. Such tendencies prevented the need to implement drastic interventionary measures that automatically triggered the resuscitation of both monetary and fiscal balancing schemes. As observed by Leamer (2007), in recent times, there has been a significant alteration in the functional relationship between the housing activity and the general business cycle. Prior to this period, movements in the level of housing investments were at the central premise of all analysis of the business cycle1. Apparently, the peak and hike that was experienced in the year 2005 steadily underwent some monumental correction by the 2007 owing to the drop in housing prices by a 10 percent margin. The figure was projected to reach a range between 14 and 22 percent as it approaches the year 2008. It is worth acknowledging that the increasing pressure brought on the banking institutions for more capital has resulted in the adoption of special-purpose vehicles backed by intended securitization clauses in their balance sheets. It is also worrying to acknowledge that still within this phenomenon general banking lending conditions have not being particularly relaxed especially when it comes to the question of financing some business activities such as asset-backed commercial paper, credits for leveraged buyouts etc. Interestingly, the popularization of credit cards and commercial real estate loans has taken over from the latter asset-backed borrowings. Reference: Bade, Robin; Michael Parkin (2001). Foundations of Microeconomics. Addison Wesley Paperback 1st Edition.  Colander, David (2008). Microeconomics. McGraw-Hill Paperback, 7th Edition. Eaton, B. Curtis; Eaton, Diane F.; and Douglas W. Allen (2002). Microeconomics. Prentice Hall, 5th Edition. Frank, Robert A. (2006). Microeconomics and Behavior. McGraw-Hill/Irwin, 6th Edition. Friedman, Milton (1976). Price Theory. Aldine Transaction: 1976 Leamer, Edward, (2007), “Housing Is the Business Cycle,” paper presented at the Federal Reserve Bank of Kansas City 31st Economic Policy Symposium, “Housing, Housing Finance and Monetary Policy,” Jackson Hole, Wyoming, August 31–September 1. Read More