Supply, Demand and Equilibrium

Discussion on Bruce Dybvik’s “The Ripple Effect: Cost of gas and groceries go hand in hand” (Dunn County News, 2008)

This blog talked about the fluctuating prices of petroleum and its wide reaching effects, particularly relating to food. An interesting topic that is described is what they call the wave function. That is, nothing happens in isolation or that everything consists of and is affected by waves or disturbances. An example they gave of this is the rising petrol prices which lead to rising food costs, transportation costs, and more. The rising price of food is linked to both supply and demand and increasing petrol prices. Higher demand leads to higher prices, higher labor costs, and higher marketing costs. Corn prices are affected mostly because it is energy intensive and because there is an effort to divert some corn for ethanol production. Rising food prices are forcing customers to change their product choices and their habits. In order to save money customers are bundling trips, or buying more per trip but going less often. In addition, private label growth has increased lately since it is less expensive. In order to keep their bottom lines at similar levels, producers have started adding fuel surcharges to their invoices. This has forced both retailers and consumers to adapt. They are both choosing different food products, different ways of doing business, and are changing the methods of preparing and buying their foods. An example of this change is buying locally. Since there are fewer or no fuel surcharges these foods tend to be cheaper. In order to promote buying locally many grocery stores have started keeping track of “miles to market.” This number shows how far the food has travelled in order to get to the grocery store. As a last effort to save money, some stores have even started picking up their food rather than having it shipped or transported. This saves money since it does not have to be shipped and there are no fuel surcharges. It seems like both people and retailers have gone back to the old fashioned way of doing things and Yogi Berra described it perfectly, “It’s déjà vu all over again.”

 “Oil prices are at the heart of inflation seen in all sectors of the economy, including food.”

A statement such as this seems to be a very bold one, but once you’ve taken another look, it is not too far off. Although, it does not seem quite fair to completely blame rising oil prices. As the article outlines, oil prices are a major factor, but so is labor costs. With many companies moving, or already moved, to developing nations, finished goods have to be shipped farther. In addition to this, as other countries are developing, labor wages are rising in those countries as well.

This article is relevant to class discussion because it shows how everything is intertwined and the far-reaching effects of supply and demand. It also shows that not all changes can be traced directly to one cause and that everything will eventually reach some sort of equilibrium. For example, consumers and retailers will adapt and change in order to save money and prices will eventually find some sort of stability in the market.

Another real world example that displays the effects of supply and demand is the price of copper in the current economy.  Copper is used in housing and automotive applications but is mainly used by the electrical industry. With the prices of copper remaining relatively high over the past few years, consumers are feeling the effects.  High copper prices paired with an increased demand for electronics, especially in the mobile device category, have caused electronic prices to rise.  From TV’s to cell phones, as well as laptops and even calculators, consumers are being pushed to spend more on the same goods.  This price ripple directly affects not only businesses and education centers that depend on the technology to carry out their mission but family’s and individual consumers as well.  The only positive point for consumers is that while copper costs increase the price, advances in other technology, for example the screens used in computers, are helping to combat an extremely substantial increase that might drive customers to seek drastically different options.

Posted by Blas, Alyssa and Jordan (Section 2)  

Resources:

http://www.huffingtonpost.com/2011/10/07/china-manufacturing_n_1000305.html

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