Fundamental Economic Principles Illustrated in This AP Article
I really enjoyed this Associated Press article about the current recession in today’s Post-Dispatch. Not because I like the recession, trust me — I feel the same way about it that everyone else does. But I did enjoy the article for the way it demonstrates basic Economics 101 principles, like the role consumer expectations can play in altering the demand curve:
The more shoppers expect prices to fall, the less they shop until prices drop. It becomes a self-fulfilling prophecy that forces companies to keep cutting. That reduces profits, making it less likely companies will hire workers or raise wages.
Or how the price of complementary (or substitute goods) can affect both demand and quantity supplied:
Dominick’s supermarkets announced in late August that prices on a range of items in its 81 stores would fall by as much as a third. Included in the cuts were both private-label goods and national brands […]
Dominick’s hopes the low prices will attract customers, who will also buy enough full-priced items to make up the difference.
“Hey, this case of Budweiser is on sale for $15.00! Let’s go buy some pretzels to go with it. Dammit, the pretzels aren’t on sale. Oh, hell, let’s get them anyway.” (There is always a lot of swearing in the liquor aisle.) I definitely recommend the entire article.