Article - 'Missoni for Target' sales (Sep 30)

Demand at Target for Fashion Line Crashes Web Site ! On Tuesday, September 13, sales of one of the most exclusive Italian fashion clothes caused a chaos. Missoni’s clothing usually costs about hundreds or thousands of dollars, but it had designed a number of cheaper items for 'Target', like for example a $40 skirt in its signature zigzag design or a $600 patio set. The sale of limited edition of 'Missoni for Target line' brought with it an unexpectedly high demand. The company even said that demand for items was higher than it was on a day after Thanksgiving, and that is usually the biggest shopping day of the year. Since the company was not prepared for so many customers, its website crashed for a number of hours. 

From this article I learned that the basic principles of demand also work in real life. As the prices of 'Missoni for Target' significantly dropped, the quantity demanded rose. However, I was very surprised that the demand was as high that it caused crash of Target's website. I also found it interesting that the demand for Target's goods was higher that the demand on the day after Thanksgiving which is known as the biggest shopping day of the year. I am glad that I found this article because it applies to the topic that we are now studying in class, Laws of Demand. Laws of Demand say that as the price rises the quantity demanded drops and as the price drops the quantity demanded rises. The prices of Missoni for Target line show that as the prices drop the quantity demanded noticeably increased. This example helped me to understand this topic.

Laws of Supply and Demand

Law of Demand states that as the price of a product falls, the quantity demanded of the product will usually increase, all other things being equal (ceteris paribus). And if the price of the product rises, the quantity demanded decreases. For example, if the price of pizza increased from $3 to $5 people would not want to buy more expensive pizza so the quantity demanded will decrease.

Law of Supply states that the higher the price of the product, the higher quantity supplied is needed. Producers supply more at a higher price because selling a higher quantity at a higher price brings a bigger profit. For example, when the price of hats decreases from $15 to $8 the seller would not want to sell much of his products for a lower price so he decreases the quantity supplied.
However, laws of demand and supply, like other things in life, are not certain and do not always work. Two interesting examples of good to which the laws do not apply are Veblen goods and Giffen goods.

Veblen goods are goods that remain exclusive and highly demanded only when the price is high. They are also reffered to "status goods" that hold cetrain prestige. These goods are named after an economist Thoreist Veblen, who was one of the first to look into and write about conspicuous consumption and the concept of seeking status through consumption. The example of Veblen goods are for example expensive cars. When the price of for example Lamborghini goes up, the demand increases too because the more expensive is the car the bigger is the interest of people who want this car as a "status symbol".

Giffen good is a consumer good for which demand rises when the price increases, and demand falls when the price decreases. This phenomenon is notable because it violates the law of demand, whereby demand should increase as price falls and decrease as price rises. To be a Giffen good, the item must lack easy subsitutes and it must be an inferior good, or a good for which demand declines as the level of income in the economy increases. An example of Giffen good can be rice.  Households in the Hunan province of China were shown to buy more rice when they had to buy it at a higher price, and less when the price they paid was subsidised. The reason for this is that, even when expensive, rice was still the cheapest source of calories available. Therefore, when the price of rice was cut, households had more money left over after buying rice. Some of this was spent on buying more expensive foods (meat, vegetables and fruit), which reduced their need for rice. 

Demand, supply, and price of oil

Oil analysts in the article in "Time" say that the traditional laws of demand and supply do not always apply to the prices of oil.   Well of course one of the key factors that influence the demand for oil is the current economic situation in most of the countries that are hit by the recession. If the country is hit by the recession, they cannot afford overpriced oil so the demand goes down. However, there are some other factors that influence the demand for oil and one of them is the rising price of oil. Rising price of oil is caused by the oil-producing countries that store a lot of supplies of oil because they are hoping for a global economic recovery. As the amount of supplies that are not sold rises, the inventories start to run out of the space for more supplies. If they run out of space they would be forced to sell the oil much cheaper ($10 a barrel) which would not bring any profit. This is also one of the key components of pricing. Another component of pricing is based on how do OPEC leaders stabilize the price of oil so that it suits their own economy’s needs. The leaders of OPEC whose economies are very dependent on oil exports, had problems with stabilizing the prices of oil that would suit their own economic needs among rising supplies of oil and falling demand. For example, the prices rose to $147 a barrel in July and then again radically dropped to $30 a barrel five months later. Therefore, the OPEC members had a meeting and decided to maintain the output at the current levels rather than increase the supplies. We would not expect them to maintain the same level of output because they clearly knew that if they increased the level of the output it would bring a relief to the "gas-guzzling West." This is when we see that the traditional laws of supply and demand do not apply because as the demand for oil increased we would expect that they would supply more oil. However, they did not do it because they knew that if they increased the supplies the price will radically drop and affect their own economies.

 

Why am I interested in economics..

Hey everybody! Welcome to my blog about economics! :)

Let me get started..so I decided to study Economics because I think that it is a very interesting subject that actually makes sense (not like Slovak Literature lol). I think that Economics can be easily applied into real life and that is also the reason why I decided to take IB Econ class. Another reason is that I am interested in International Relations and my big dream is to work for United Nations or European Parliament. International Relations are closely related to Economics so I think that it is essential for me to get to know Economics better now when I am still on high school. I'm really looking forward when we come to the "International Economics" topic.

Okay so that's it for now. :P