The law of demand and supply plays a crucial role in microeconomics, just like fiscal policies in macroeconomics. Sloman (2006, p. 56) views demand and supply as the major determinant of the decisions individuals and firms make, and how these decisions interact and influence the way resources are allocated and the way income is distributed. This author also views fiscal policies as dictators of the behaviour of the entire economy, and solution providers to the social problems of economic growth, unemployment, and inflation. This paper answers two questions in relation to supply and demand economics theory and fiscal policy.
Why the Average Price of Laptop Computers has Changed over the Last Two Year
According to Albanesius (2011), a 65% increase in the price of inputs or hardware that is used in the manufacture of laptops has been realised in the United Kingdom. This increase in inputs has translated into an increase in the price of laptops in the United Kingdom. Albanesius (2011) attributes this 65% increase in cost of inputs to the rocketing prices of hard disk drives as a result of a tremendous decline in Hard disk drive shipments to the United Kingdom. This decline in hard disk drive shipments is caused by the devastating floods that hit Thailand; a major producer and supply of hard disk drives.
Albanesius (2011) reports that these floods have plagued Thailand from July and claimed more than four hundred and fifty lives. In addition, hard disk manufacturers in this country like Western Digital and Toshiba have halted their production of hard disk drives after temporarily closing down their offices in this nation. Thailand has been known to account for over forty five percent of the world’s Hard-drive production, and this flooding has destroyed more than a dozen hard disk drive factories leading to a decline in the number of hard disk drives in the market.
The increase in the prices of laptops could also have been caused by technological changes, for example, most laptops being vended today already have Microsoft windows software installed in them. This pre installation leads to an increase in the price of the laptop to cater for the cost of the pre-installed operating system. Schofield (2012) asserts that other technological changes, for example, the introduction of techno-savvy laptops like the Ultrabooks and Apple Inc’s MacBook Wheel laptop have also attributed to this increase in the price of laptops.
Nystedt (2010) views the rise in value of Chinese Yuan against the United States Dollar as another cause of the increase in the prices of laptops in the United Kingdom. In this author’s view, the Yuan exchange rate rise impacts the prices of laptops not only in the United Kingdom but worldwide since bulk of the world’s electronic products are assembled in Chinese factories. In these factories majority of the costs are in Yuan. Additionally, manufactures of components that are in limited supply like the printed circuit boards (PCB) can take this advantage and raise their prices. When this is done the prices of laptops will eventually rise due to an increase in the price of their components.
The recession periods experienced in 2009 as a result of the 2007 to 2008 global financial crisis also adds to the factors responsible for an increase in the prices of laptops. Nystedt (2010) asserts that at this time, most retailers and manufactures close down or reduce their production. This results into a limited number of laptops in the market, resulting into an increase in price.
Why Fiscal Policy in the United Kingdom has changed over the Last Two Years
Fiscal policy has been defined by Sexton (2007, p. 756) as the use of government purchases, transfer payments, and taxes to alter the equilibrium prices, output and the GDP levels of an economy. In most instances, it is necessary for governments to use fiscal policies to stimulate the economy during recession or to try to curb an expansion so as to bring inflation under control.
- Why Fiscal Policy has Changed
The United Kingdom’s governmental fiscal policy has been changing as the government tries to slow down the increase in its own spending rate. According to Hodson and Mabbett (2009, p. 1041), these changes have been brought about by the 2007 to 2008 global financial crisis which had a hard hit on the economy of the United Kingdom and other European nations. Hodson and Mabbett (2009, p. 1041) further assert that before this crisis, the United Kingdom preached a gospel of fiscal prudence, light touch regulation and price stability.
The onset of this financial crisis, forced it to abandon this message and tolerate unconventional monetary policies and increase public-sector borrowing. This financial crisis led to a contraction of the GDP by four percent in 2009 marking United Kingdom’s first recession in seventeen years and the worst ever experienced in sixty years. Due to this a need for an expansionary fiscal policy was more appropriate to stimulate economic growth.
- Osborne and Balls Debate
The United Kingdom’s governmental fiscal policies have shifted from; Gordon Brown’s Golden Rule, Keynesian fiscal policy, and the recouped Osborne and Balls debate. In the Osborne and Balls, debate, Mr. Osborne argues that one of the means of stimulating the economy after the 2008 financial crisis was to increase government borrowing. According to Hodson and Mabbett (2009, p. 1041), this increase has been favoured despite the fact that bigger spending and taxation rises exist. Mr. Balls on the other hand argues that increased government spending was triggered by the failure of Plan A, which demanded more infrastructure spending.
- Keynesian Fiscal Policy 1976
The Keynesian fiscal policy became very instrumental in the 1976 IMF crisis when the collapse of the sterling pound and near collapse of the Labour Government was experienced. Sexton (2007, p. 756) asserts that the Keynesian fiscal policy favours the use of expansionary and contractionary fiscal policies to influence macroeconomic performance. These policies do this by increasing or decreasing the aggregate demand.
The use of expansionary fiscal policy tools like increasing taxes, decreasing government purchases and reducing transfer payments became very crucial during this 1976 crisis. According to Hickson (2008, p. 36), this IMF Crisis refers to the economic crises of 1974 to 1976 that followed the OPEC price-shocks of 1972 and 1973. In this period, the British government negotiated the terms of the loan with the International Monetary Fund (IMF), which led to a decisive pattern in the government’s economic thinking. It also led to a change in the dominant approach to political economy. This loan was meant to expand the budget surplus and reduce the budget deficits in line with Keynes fiscal policy.
- Gordon Brown Period Fiscal Policy
Gordon Brown’s period was characterized by the ‘Golden Rule’ fiscal policy. According to Hodson and Mabbett (2009, p. 1041), this rule stated that government borrowing should only be done for future needs or investments. The current needs or current spending by the government should be met by revenues from taxation. This rule was expected to bring stability in net worth, national spending, debt, and national income. Unfortunately this rule was scrapped off by the end of 2008 when the public debt had risen to 42% of GDP and in its stead; an expansionary Keynesian was proposed to stimulate economic growth.
In conclusion, the price of laptops in the United Kingdoms’ microeconomics has been affected greatly by the flooding in Thailand, exchange rate between the Yen and the dollar, and the introduction of new technological advanced laptops among others. In the macroeconomics side the fiscal policies have been changing due to the adverse effects of the 2007 to 2008 global financial crisis.