Supply and Demand Theory - Essay Example

Supply and Demand Theory The turbulent economy has caused many organizations to have an increased supply of products produced by manufacturers. Global competition, advances in product production and a recessive economy has manufacturers with an oversupply of unwanted goods that must be sold. Price conscience consumers are more thrifty and decisive when it comes to making purchases. Producers have recognized the shift in spending and to curtail oversupply companies are forced to obey the law of supply and demand. According Wikipedia, the law of supply and demand can be defined as an “economic model based of price determination in a market. It concludes that in a competitive market, price will function to equalize the quantity demanded by consumers, and the quantity supplied by producers, resulting in an economic equilibrium of price and quantity.” This model theory has been tested in the technological industry in particular with laptop computers. The once pricey laptop, deemed a luxury item, has since been price reduced to be affordable to the average working individual. Weak demands for the laptop computer combined with high production volumes have initiated price reductions for the once coveted item. Consumers are now requiring manufactures to provide more features from technological items without increasing the price of the item. According to the article, “Less is Moore; Technology in the recession,” consumers desiring to do more elaborate things with the computer keeps companies upgrading costing the customer around the same price of the previous one. The article goes on to say that the computer industry has advanced by following the law derived by Gordon Moore, a co-founder of Intel, the world’s biggest chipmaker. Moore’s law states that “the cost of a given amount of computing power falls by half roughly every 18 months, so the amount of computing power available at a particular price doubles over the same period (paragraph 1-3).” However, the maturation of the technological industry paired with the recession has turned Moore’s theory on its ear. Consumers are content with low-cost laptops which may have the performance of yesteryear laptop over the latest pricier version. Competition has gotten even more fierce in the computer industry. Small manufacturers have introduced a new version of laptops known as sub-laptops, or netbooks for the customer not needing the high performance power of the conventional laptop. The article “Laptops. The future is small” suggests that because internet applications are providing users with what they need, computers do not need to be that powerful. Netbooks are designed primarily for internet access and basic work processing and they are flying off the shelf (paragraphs 1-3). The Moore theory is not just isolated to the individual consumer, but also the corporate customer. Future forecast appears gloom for the computer industry as technology manufactures create software that will make a computer run faster utilizing fewer resources. Companies are now capable of purchasing software that is goal specific abandoning fancy features allowing companies to save money. The article “Deflation in tech sector hurts profits; Sales are great for the consumers but not for investors” says that there has been as sprout in cloud computing, which means that software sits on a server as a rental “out in the cloud” opposed than being purchased and sitting on a desktop (paragraph 9). The flow of economics can be directly linked to the computer industry. The model of supply and demand has directly impacted to the computer industry. Manufacturers have a surplus in computer products, therefore the law of supply and demand calls for computer prices to be lowered in order to stimulate the purchases of computers therefore reestablishing equilibrium. Monetary Policy in the UK The United States is not the only country experiencing slowed economic flow. The UK is also having its fair share of trouble. The UK has now entered into a credit crunch and slowed retail sales mirroring that of the United States and has been officially declared being in a recession. The article the “UK monetary policy: the international context” examines the UK monetary policy and suggests that developments in the international economy directly influence UK monetary policy. The author explains that the UK economy is fully integrated with global markets and as other countries experience downturns in their economies, it has a direct negative influence on the economy of the UK (483). One of the source contributors to the stifling economy is the weakness in consumer spending. The spending on consumer goods has been flat and outlook continues to look bleak. However, consumer spending includes services and utilities which has continued to grow but at a snail’s pace. The growth of the other channels of consumer spending that has to be examined is business investments and net exports. The article continues by saying the UK economy is impacted by trends that affect supply and demand such a over-supply in manufacturer production which drives prices down. The UK economy is also connected to the global markets, therefore shifts toward outsourcing has been directly impacting import prices. This trend has depressed local manufacturers and having direct impact on jobs (pg. 484). Another contributor to the UK economic experience is the strong rise in house prices and the disproportionate borrowing habits of consumers compared to their disposable income. Consumers borrowing money that overshadowed real income has led to inflation in home purchases and home values. However, there is no information suggested that the UK is experiencing the plague of home foreclosures like that of the United States. With the deregulation of the lending institutions, the sub-prime market enabled persons who may not have qualified for a mortgage loan from more traditional lenders, the opportunity to become a homeowner. Since the lender risk was greater, sub-prime candidates received mortgage interest rates higher than that of traditional lenders. The spending ratio has also impacted the habit of consumer spending. The debt to income ratio has skyrocketed and left the average consumer in overwhelming debt. Similar to the situation of the United States, the genesis of the tumbling economy has its origins with the sharp rise of oil prices since 2004. The tripling in oil prices caused by complex explanations had negatively impacted consumers’ disposable income. The article “UK monetary policy: the international context,” predicts future oil prices to rise at a probability of 15% in next year, even though it admits that measures are imperfect (pg 486). The UK is now trying to address the lending fiasco that is plaguing their country by addressing the issues that are similar to that which the US is currently addressing. According to the article “Now for something completely different; Monetary policy, central banks have again lowered the interest rate by .5% in early October. The central bank has also began purchasing private-sector assets, such as commercial paper, as another strategic tactic to counteract the slumbering economy (paragraphs 3-4). However, the forecast for the UK economy looks promising. The article “Still overshadowing, but brightening,’ suggests that Britain’s economic outlook shows promising signs that the economy is improving. The article explains that the UK is experiencing their deepest recession since the second world war and may be on the spurts of rebounding. Directly linking its economy to that of the United States and other countries, the UK expresses an increase in consumer confidence after America reported a bounce-back in the three months prior to September. The UK labor market is also beating earlier predicted expectations. The once feared 10% jobless rate is less likely to be attained and recent surveys that both manufacturing and big service sectors continue to grow. This is excellent news paired with the respectable sales of the retail industry. Also, the central GDP growth projections were notably stronger than the month of August. The UK can attribute some of the rebound to tighter fiscal policy. After being threatened to lose its prized triple-A status as a sovereign borrower from Fitch, a credit rating agency, the actions to stabilize the economy were reinforced. By also calculating in the Labour’s plan for fiscal tightening, banks hope that the upsurge in inflation is short-lived and will return to 3% to 1% by the end of 2010 (paragraphs 1-5). The theory of supply and demand states that equilibrium between the two initiates competition therefore self stabilizing the economy. If supply is greater than demand, than prices will drop therefore sparking an interest for the consumer to purchase. The reverse suggests that if demand is high, prices will increase as production has to be increased to meet the demand. The increase in supply has led to the surplus in laptop computers. The surplus in production paired with other external influences such as the recession and competition from lightweight notebooks has caused the price of the laptop to drop. The external influence of the recession has a hand that spans across American boarders. The UK is in the midst of a recession. Weak consumer confidence, inflation and less disposable income has contributed the UK economic condition. Facing dilemmas similar to that of the United States, the UK is now taking proactive steps to turn their economy around. Works Cited Classen, Larry. “Laptops. The future is small.” Economy, Business & Finance. Sept. 2008: 22. Print “Less is Moore: Technology in the recession.’ The Economist (U.S. Edition). Jan. 2009: 1-2. Print Lomax, Rachel. “UK monetary policy: the international context.” Bank of England Quarterly Bulletin; Vol 45 Issue 4, (2005): 483-488. Print “Now for something completely different; Monetary policy.” The Economist (U.S. Edition) Mar. 2009: 1-2. Print Stewert, Duncan. “Deflation in tech sector hurts profits; Sales are great for consumers but not for investors.” National Post’s Financial Post & FP Investing (Canada). 7 January 2009: FP8. Print “Still overcast, but brightening; Britain’s economic outlook.” The Economist (U.S. Edition) Nov. 2009: 1-2. Print Read More