Hello everyone, and welcome to my website. Since this is my
first post, I will make a short introduction.
I created this “blog” for the sake of discussing economic
issues. Previously I stuck to Facebook for trying to discuss different issues,
however I found that many did not care for discussing these issues, and even
some may have been annoyed with my attempt. I decided then to make this blog,
where I can talk about issues I think are important to the world today, with a
focus on economics.I want this blog to be as unbiased as possible. I will say that even though I do lean more towards libertarian, I will be open to any discussion, and I will back up my claims with the best evidence I possibly can. I find that those who claim to be “completely unbiased” still naturally put bias into their work, thus causing some discontent among the readers/ viewers. So I will use this to not only defend some of my stances, but also learn more about stance from other people, and maybe even change my views if one’s evidence simply is stronger than mine.
That being said, the first topic I would like to discuss is
as simple as Supply and Demand. I saw a meme of Hillary Clinton going around,
which quotes her saying “Don’t let anyone tell you corporations create jobs”.
Besides being taken completely out of context[1],
this brings up an interesting topic. What is more important to an economy- the demand
from the consumers or the supply from the businesses?
I have seen progressives claim that demand is obviously the
most important aspect of the economy. Without the consumer’s demand, nothing
would be bought. One may say that businesses react to demand from a consumer,
not the other way around. An example of this would be Steve Jobs and his early
days at Apple. By the 1980s, Apple was on the decline. Part of this was because
“Jobs had envisioned the Mac as a home
computer, but at $2,495, it was too expensive for the consumer market. When
consumer sales failed to reach projections, Jobs tried pitching the Mac as a
business computer. But with little memory, no hard drive and no networking
capabilities, the Mac had almost none of the features corporate America wanted.”[2]
It seems that Jobs was at the mercy of his consumers, or the demand.
For a more general example, suppose that a hypothetical
community of 15 people has one shop (which is owned by one of the 15 people).
The shop starts by selling oranges, but the 14 consumers do not want to buy
oranges, but pears instead. The shop will not continue to sell oranges, but
switch to pears. It must be obvious that the demand has the power in this
relationship, but let us see the other side.
Most conservatives would disagree with the notion that
demand is more important, and powerful, than supply. This belief is not without
a base. Let us return to the Steve Jobs example. Steve Jobs and Steve Wozniak
were able to create extremely innovative products. Before the failure of the
Macintosh in the 1980s, “… they
introduced the Apple II -- the first personal computer with color graphics and
a keyboard. Designed for beginners the user-friendly Apple II was a tremendous
success, ushering in the era of the personal computer. First-year sales topped
$3 million. Two years later, sales ballooned to $200 million.”[3]
What is important about this example is that the Apple II
wasn’t created to match the demand by
the consumers. People were not saying that they wanted color graphics and a
keyboard on their computer until Jobs and Wozniak introduced it to them. This
is an example of innovation revolutionizing the market with supply that was
never seen before. In fact, they created the personal computer market with the
success of the Apple II. It is because of innovation like this that conservatives
will defend the importance of protecting supply.
Consider the hypothetical community again. Suppose that in the
community of 15 people, the 14 consumers have never seen fruit salad before.
The shop, instead of just selling one type of fruit, decides to start selling
the innovative fruit salad. This way, the people can get a taste of apples,
oranges, and pears. The fruit salad is a huge hit. Before the shop introduced
the fruit salad, the community couldn’t “demand” it, because they didn’t even
know it existed. One could say that the innovations in the market must lie in
supply then.
It almost seems that this argument is one similar to “the
chicken and the egg”. For hours two people could go in circles, constantly
arguing that demand caused suppliers to react, or suppliers create new demand.
This, however, is not productive because supply and demand are equally
important. You cannot have a successful economy without either one. What it
comes down to is that there are certain situations in which the demand is more
important than supply, but in other situations the supply becomes more
important to demand. Both examples with the fruit shop can happen to an actual shop
(although in a much more complex way). Businesses meet demand, but they also
create new demand with their innovations.
It could be concluded that demand undoubtedly affects a
business’s actions. However, only the supplier can bring new innovations into
the market. Demand does not create innovation. If a consumer is innovative and
creates a new product, then they are now the supplier! But a consumer that
simply demands products does not innovate. It is demand, though, that checks the
innovation. Simply put, there is always a possibility that a new product by a
business will not be popular with consumers.
This relationship can be thought of as almost a checks and
balances system. Demand needs supply, and supply needs demand. Each one has
checks on the other, and each one simply can not become more powerful than the
other. Both are extremely important to economics.
I hope you enjoyed my first article and it has shed some
light on this issue. I am new at this, so any feedback would be greatly
appreciated in the comments below. It will be my goal to post at least once a
week.
[1] http://www.politifact.com/truth-o-meter/article/2014/oct/30/context-hillary-clinton-and-dont-let-anybody-tell-/
[2] http://www.entrepreneur.com/article/197538
[3] http://www.entrepreneur.com/article/197538
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