Economic Journal

Article 1

The article, “Food Prices and Supply,” was published in the New York Times on July 26th, 2012.

A drought and massive food shortage has occurred in summer of 2012. Accordingly, the prices for food products went up and many people became concerned about  the food prices in future .

The United States government on July 25 clarified that the the prices for groceries, including beef, pork, chicken, and milk were expected to go up due to unsatisfactory weather forecasts. About 88% of the corn crop was affected by the drought, which makes it a serious issue, since it is a major export, staple food, and also animal fodder.

The government had already predicted that the prices for beef would go up by 4 to 5 percent with a little lower increase in the prices for chicken, pork, and dairy products.

The article informs that bad weather conditions were accompanied by heat and drought. For this reason, the production of staple crops dropped drastically. This situation resulted in huge supply-side shocks which bid up the prices of nearly all of the food items. Even when Americans spend only 13% of their incomes on buying food items and groceries, the price changes are considerable. The government had already predicted the increase in the price for beef  around 4 to 5%.

 

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On the other hand, there were huge increases in the prices for nearly all of the essential staples. In particular, the wheat and soybean prices rose considerably. This has given a push to a global food price rise, since these staple products were also exported.

Institutions like the World Bank and the United Nations have already warned that it was a food crisis similar to the one in 2007 - 2008, when there was a  huge increase in the prices for staple food items and other products. Developing countries  relied on the food items imported from the United States heavily, so they have been warned about the possibility of negative outcomes.

Article 2

The article,  “How to Measure Product Demand,”  by Kate McFarlin, was  published in Chron.com.

The article discusses several ways that businesses can use to  forecast the demand for their products. When a business is new, it is very difficult to forecast the demand for its products. If they forecast more sales than they can actually do, they will be left with unsold inventory. On the other hand, if they forecast less sales, there will be stock-outs and gone customers. Therefore, it is essential to predict the sales  accurately and correctly.

One way to make an accurate forecast is to look at the previous sales data. In such a way, the sales of the previous year may be used to predict the sales of the current year. It is also important to look at trends and seasonal variations in sales. However, this method has its weaknesses, as it is not a dynamic method. In particular, it fails to take into consideration the market factors, competition, and other external environmental factors.

Another method of sales forecast is through looking at the sales data of the  competitors. Using this method, the sales of a new product can be forecast relatively easily. However, the assumptions are that the product is comparable to the one offered by a competitor and both businesses employ competitive pricing strategies.

Another method of forecasting the demand for a product is through analysis of the current sales data. This method is  especially useful for new products, because  the forecasters can see how the products will be sold in future given the current data on sales. In such a way, they will be able to include minor adjustments to the current sales data in order to come up with their forecasts.

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Yet another method of forecasting the sales is through analyzing the marketing strategy the company developed. If the company expects to increase its customer base then the sales will most likely  go up. This way the company will know exactly which marketing strategies  will result in the necessary sales increases.

Article 3

The article, “Gold Price Forecasts become Bearish, Stoeferle Bullish Explaining Key Drivers,”was published in Gold Silver Worlds on January 23rd, 2013.

This article explains that the future of gold prices is bearish in nature. There is no huge demand and supply of gold in the forthcoming future. This bearish trend is expected to continue into the subsequent years up until 2015. This is in contrast to the forecasts of the majority of analysts, who believe that gold prices will rise in the future. They are extrapolating the current gold prices into the future.

This bearish trend is in a contrast to  the future prices. The  markets indicate only the short-term price of gold and do not show the long-term trend, which has already been proven to be bearish in nature.

Furthermore, the fundamental principles indicate that the price of gold will remain bullish in the coming years. In particular, there is a huge demand for gold in India and China. This year the gold exports of both of these countries rose  to reach their peak level, which demonstrates a . strong investor and saver confidence in gold and its value. The demand for gold in Asian markets is expected to continue its path. However, there are no supply shortages which have been expected. Therefore, the overall trend for the demand for has been bullish in nature. At the same time, it is also true that there is not much demand for gold in the developed world.

Article 4

The article, “Retail Gasoline Falls First Time in 2013 as Plant Work Nears End,”  was published in Bloomberg on March 5th, 2013.

The article informs that as soon as most of the oil producing plants in the United States completed their annual maintenance work, there was a surge in gasoline supply. This increase in gasoline supply resulted in the decrease in prices for gasoline  0.7%. Moreover, it is also expected that other oil producing plants  in the United States will also complete their regular maintenance work and t resume their supplies after it. This will  bring  gasoline prices in the United States further down.

Most of the largest refineries in the US have already completed  their repair and maintenance work. Likewise, others were also approaching an end of maintenance work. Still, it was in the East Coast that the prices of gasoline slumped a little. The prices in the West Coast and the Mid-West rose, on the contrary.

The gasoline pumps in the country have been posting price surges since September. This was the first time when there was a decrease in the future prices. As more supplies resume, it is expected that the prices will drop further. However, there will be no big changes in oil prices. The current prices and future expectations have also influenced the futures' prices  on the New York Mercantile Exchange. The futures' prices for April  declined by $3.03. Moreover, the April premium on futures has also narrowed by one point. This was mainly due to the expectations about an increase in  oil supply during current and next months. Still, the price per gallon and per barrel of oil declined. At the same time, the supply has risen by several thousand barrels per day at each gasoline producing plant.

Article 5

The article,“How to Spot a Supply Shock,” by Matthew Yglesias, was posted on Nov 2nd, 2012  on Slate.com.

This article explains that the current recession 2007-08 was not a demand shock, but a supply shock caused by redistribution of incomes. The author explains that this supply shock arose when there was no reason for the workforce and manpower to remain employed. He provides an example of  the payments on Medicaid that have soared while the supply-side tax increases were not there. This created a huge incentive for people to stop working or looking for employment opportunities, since they received an adequate compensation through the safety-net programs.

Accordingly, this tendency of quiting the jobs and staying at home resulted in a supply-side shock in the market and  a rise int the wage rates. In such a way, the wage rates rose while there was a shortage of labor. However, when we examine the recession in detail we come to conclusion  that such unemployment rates were consistent throughout the globe and not just in the United States. Countries like Estonia, UK, Japan, and others had similarly high unemployment rates.

The author also states that such situation is expected to result in high inflation. In such a case,  a an economy of the country will face both high unemployment and high inflation. This happens when the people spend more then they earn.

However, the recession indicated that there was a collapse in both the supply-side economics and the price levels. This happens when there is a decrease in output due to the lower production level that resulted from higher unemployment. The incentives that the government used to provide was one or the primary causes for such a high unemployment rate.

To conclude,  this was indeed a supply-side shock, as there was a low supply of labor. This situation resulted in a  decreased production levels which caused a recession in the economy.