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Economic balances

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Last year when I wanted a new microwave, I shopped around and went to Comet in the end. Now Comet has closed down, I have less choice and so when my freezer died I checked them out online and went to Curry’s to buy one. There is now less competition for Curry’s and so they will fill the gap left by Comet and sell more. There is still lots of competition in that market though.

I bought my new freezer from Curry’s, because I wanted to see it and check the measurements. I decided to buy my new camera that was worth more online, because I found a better deal than Curry’s was offering. A few weeks later and the store online is offering the camera at a better price and Curry’s is offering it £60 cheaper too. There is a lesson there for Curry’s, when prices drop be the first to offer the lower price to your potential customers. I knew the price would drop because a stupid cash back deal had come to an end. People prefer lower prices to cash back and worthless points and tokens. Curry’s did give me voucher for a 16 Gb flash drive for 9.99. I did go back and buy that. I didn’t want to spend time shopping around and it seemed reasonable. I just checked, I could have saved 1.49 by shopping around. The market tends to be self balancing according to economic theory, but there are always people who try to manipulate the market. You can make huge amounts of money by setting up a cartel or a monopoly. If you own the only supermarket around, customers either shop in your store or have to spend money on fuel or fares to shop somewhere else. They also have to give up a lot of their free time.

If you keep accounts and in your accounts you have savings in the bank, the bank is paying you interest and it gets that, by lending your money out to someone else. For every asset in one set of accounts, there is a liability in another set of accounts. The government has a lot of liabilities in it’s accounts, half the UK public have mortgages and credit card debt. Who has all the assets on their accounts? Some people believe it’s the Chinese government and they do have some, but most of that money is owed to pension funds and wealthy foreign investors. There are many people with money tied up in pension funds and their homes, that are struggling to pay their mortgages and credit card bills. They effectively owe themselves money! 

Supply and demand is another economic ‘balance’. When the bad weather of last year affected the potato crops. Farmers with a smaller crop still had to make a living, out of that smaller crop. They put the price up, so they get the same amount of money in for fewer bags of potatoes. Demand was the same, but supply was short, so prices go up. Prices were moderated though, by international trade; if farmers had put prices up too much, large amounts would have been imported. Shortages like that mean people switch to other foods, so other foods go up in price too. If people cut down on potatoes they might buy more bread or rice, so the effect of increased demand for these goods, increases prices.

Technology tends to bring prices down and so does innovation. A technical innovation can mean a product is cheaper to produce. The company that innovates can reduce it’s prices and capture a bigger share of the market and increase profits while it’s competitors are struggling to catch up. Generally speaking it’s advances in technology that produces increases in growth and wealth; leading to rising living standards. The technology might be a computer to help an administrator do more work in the same amount of time, a harvester that allows a farmer to harvest his potatoes before the bad weather sets in or a new brick that allows a bricklayer to build a wall in half the time. You might think technology can’t produce art or sing a song, but it’s technology that allows us to share art with millions, it’s technology that builds the art gallery and it’s technology that allows us to record those pop songs. Computers aren’t good at caring about people, we need humans to interact with humans and do the caring; but computer controlled robots can do much of the work.

What do you think? Please share your thoughts in the comments box. You can also follow me on Twitter.

One Response

  1. Pingback: Thrifty Thursday | Careful shopping | Mike10613's Blog

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