The article analysis “Basic Terminology in Economics”

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Table of Contents

Introduction
Analysis of the article
Conclusion
References

Introduction

The article chosen for analysis is a discussion of food consumption patterns within the United Kingdom. Its author illustrates how important economics is as it can be used to understand day to day occurrences.

Analysis of the article

The article is discussion of factors that affect consumption of commodities. The author does this by carrying out a case study analysis of London. He asserts that in the past, England was known for its poor quality food. Most foreigners would frown upon restaurant servings as English standards were way below international standards. Krugman (1997) explains that these poor tastes were caused by historical events that somehow placed the people of London in a position where they had to contend with low quality food. However the entry of numerous foreigners into the UK changed London as it is now full of fine cuisine; this denotes altered preferences. The occurrences have been placed in an economic context by the author who affirms that laws of supply and demand were responsible for Londoners’ predicaments. He affirms that these residents were stuck in a low equilibrium where high quality food did not get supplied. Therefore, they did not know what good food tasted like and this caused them to only demand for low quality food. However, when external forces were introduced into the consumption equation, this upset the equilibrium; consumers’ tastes were refined and they started demanding for better food. Supplies had to sharpen their offerings and eventually a new equilibrium was established where both supply and demand were satisfied.

The article was interesting to me because it talks about a very simple topic (food) that everyone can relate. It also discusses a range of economics fundamentals and how they can be applied.

There are three important terms that Kruigman (1997) talks about in his article that are directly related to economic terms and these are: supply, demand and equilibrium. In module 1, supply is defined as the ability and willingness of sellers to offer and produce certain quantities of a certain resource at a certain price within a certain period. In the article, supply is studied in the context of food as a resource, the nineteen eighties and nineties as the fixed periods and food sellers as the suppliers. Demand on the other hand can be defined as the ability and willingness of consumers to buy varying quantities of a certain resource at a certain price within a certain time frame. In the article, demand was understood in the context of food consumers as the buyers. Equilibrium is defined a point where sellers and buyers concur. In other words, this is the situation where demand and supply are equal. Within the case study, equilibrium occurred when food consumers were satisfied with food suppliers’ offerings.

The intricacies of supply and demand can be well understood within this article. The author claims that goods are only supplied if there is a demand for them. However, in order to demand such food, then consumers must have been exposed to them in the first place through previous suppliers. If the latter does not occur, then consumers may be content with a low quality item without knowing that it is actually low quality. Conversely, the suppliers may keep providing low quality merchandise because that is what is being demanded. However, when an external force comes into play, then this upsets the equilibrium. In the case study, demand for tastier food outstripped supply after a large number of immigrants entered the UK food market. Consequently, in order to restore equilibrium, the native Englishmen had to meet this rise in demand for better food by offering it and they were able to establish a new equilibrium.

The most relevant big idea to this article is idea 4 which states that “the market may not always work in an efficient manner and government action may be needed” (TUI, 2009) While most economists agree that markets have their own way of correcting distortions, some times this may not occur as soon as is necessary or it may not occur at all. In order to make them efficient or to make consumers better off than they currently are, there is a need for introduction of an external factor. This can sometimes occur through government interventions or through other mechanisms. For the case of London, market inefficiencies were corrected through a massive influx of French immigrants who altered consumer tastes and this eventually distorted demand.

This article proves that sometimes when left on its own, the economy may begin underperforming. In other words a free market economy may not always serve the good of the nation thus promoting governments to intervene. It should be noted however that for the latter interventions to work, the government must seek to deal with the root causes of the distortions. Such an article can be helpful in justifying government attempts at correcting market inefficiencies. For instance, this article could encourage interventions through tactics such as taxation or through price floors and ceilings.

Conclusion

The laws of supply and demand are relevant even in simple things like food consumption. Market inefficiencies can cause supply and demand to be equal in a mediocre way. It therefore becomes necessary for external forces to intervene in order to correct this ineffectiveness.

References

Krugman (1997). Supply, Demand and English food.

University of Touro International (2009). Basic Terminology in Economics. Touro University International publication.

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The article analysis “Basic Terminology in Economics”

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