Economics
Economics is the study of choice and behavior towards scarcity. It is concerned with peopleās efforts to utilize scarce resources to maintain their lives by their perceived needs and ambitions. People have unlimited wants but the resources available to satisfy them are scarce. A rational consumer will always prefer more for less but will always be constrained by the available resources (Mankiw, 1990). Scarcity, therefore, constitutes the biggest economic problem. Due to scarcity of resources people have to make choices and in making these choices, they must consider the opportunity cost of having one thing for another. Life presents us with three major economic problems: what to produce, how to produce, and for whom to produce.
Microeconomics
It is the study of economic behavior and decisions of individual households. These individual households could be firms or families. It tends to examine how these behaviors affect the demand and supply of goods and services in an economy. It is largely concerned with the allocation of scarce resources and the elasticity of producers and consumers at the household level. Firms for example need to understand the demand and supply of their products properly to come up with the appropriate pricing strategy. They have to know accurately the complementary and substitute products that exist for their goods and services in the market.
Law of supply
The law of supply states that holding other factors constant, a price rise will lead to an increase in the amount of quantity supplied and vice versa. The rise in the price of a commodity acts as an incentive for suppliers to produce more to optimize their profits.
When price increases from p0 to p2, output increases from q0 to q2 while a decrease in price from p0 to p1 causes a decrease in output from q0 to q1.
The law of demand
The law states that as the price of a commodity increases people will substitute more and more of that commodity for another. As the price increases, people tend to forego the consumption of that commodity up to a level in price where they completely switch to the substitute commodity. Simply put, the higher the price of a commodity the lower its demand and vice versa.
An increase in price from p0 to p2 leads to a consecutive decrease in quantity demanded from q0 to q1. On the other hand, a decrease in price from p0 to p1 leads to an increase in quantity demanded from q0 to q2.
Factors causing a change in supply in Orange County
Change in technology
There has been a huge technological revolution in Orange County leading to efficiency in production and high standards of living. These range from computers, fax services, internet services, satellite broadcasting, and online data banks. These have reduced the cost of production of goods and services by increasing efficiency in production. As result firms can produce more at minimal cost hence boosting the supply of goods and services in the market.
Venkatesh (1990) observes that the availability of an elaborate credit system which is manifested by the easy accessibility of home mortgages, automobile loans, and credit cards has also boosted demand for housing and automobiles. This has consequently led to a sharp increase in the supply of housing and automobiles in the county. Production efficiency has further led to a marked increase in the supply of goods and services in this market. Due to advancements in technology, there is a high marginal productivity of capital and labor which has reduced the cost of production causing an increase in output.
Orange County also boasts of a high purchasing power as a result of its high incomes. With a median price of $247000 per household, the high price acts as an incentive for firms to produce more thus increasing supply in the market.
Factors affecting the change of demand in the county
As I said earlier, technological advancement increases the quality of goods and as a result, more quantity is demanded. Orange County has had a good track record in technology advancement especially in the field of IT which translates to higher technology hence giving its products higher leverage among its consumers. Market promotion campaigns have also led to an increased demand for their commodity. This has been evident through advertisements targeting the child consumer who is treated as an independent consumer hence boosting demand within the segment. The swap meets and consumer warehousing concept is also another strategy that has been quite successful in uplifting the demand for their commodities. These along with the ethnic concept have shown impressive results in terms of product demand.
The inherent cultural values and norms have also served to maintain a strong demand in the market. The culture of Orange County values consumption as a mark of social success which further increases the level of quantity demanded in the market. The demand for trendy cars, stylish clothes, and housing is very high in the market. Besides these Orange County is an affluent neighborhood that is quite wealthy with a median annual family income of about $43000 in 1998, according to Venkatesh (1990). This was ranked 8th largest in the USA and first among the 20 most populous metropolitan regions. This has the effect of increasing the aggregate demand for products.
Factors that changed consumption patterns
The consumption patterns in this region are largely dictated by socio-cultural norms that hold high consumption as a mark of accomplishment in the society. Possession of trendy cars, stylish clothes, and living in affluent neighborhoods is highly regarded among the residents.
The community has immense wealth which is evident in their high purchasing power. Their level of expenditure is thus quite high. The high level of distribution of wealth in the county also influences their consumption patterns mainly by increasing the buying power of the majority of the residents. It is also located within a large nonhomogenous market which leads to highly differentiated consumer patterns that are reflected in their choices. The consumer, therefore, has a large basket of choices to choose from.
The county also possesses a high level of literacy which gives room for market sophistication, experimentation, and innovation. This presents itself in form of high quality and efficiency of service which amounts to a rise in demand. Another factor is the change in family structure which presents itself in form of a rise in dual-income middle-class families. The result is usually an increase in total household incomes. The married women in employment have their financial freedom from their spouses and make their own decisions on expenditure. Another effect is that many other families of the kind often eat out which has a considerable impact on the local economy. There are also new emerging shopping environments that are quickly changing the consumption patterns such as Swap meets and consumer warehousing.
Effects on Utility
Due to their affluent nature combined with their secure and rising incomes among the residents of Orange County their valuations of marginal utility for money is lower compared to other counties and are likely to spend more money on goods. The nonhomogenous nature of their market presents them with enormous choices. Because they have most of their basic needs already met, they derive more utility by consuming more units of Giffen goods like trendy cars, high-end housing, jewelry, stylish clothes, and holidays. These goods have abnormal demand in that an increase in their prices leads to an increase in their consumption. For example, the entertainment industry operates a booming business in this county. Their marginal utility curve is therefore highly influenced by their affluent nature in addition to the society’s cultural norms and values.
On the other hand movement of the market prices is also largely influenced by their affluence. Due to fashion consciousness, prices follow the changes in tastes and preferences in the market.
That means that whenever the current tastes and preferences favor consumption of a particular good or service, all other factors held constant, consumption of that commodity will increase hence exerting upward pressure on its price. Changes in technology also influence the pricing structure in that with a rise in technological advancement in production, the cost of production is greatly reduced which is later reflected in the prices. New revolutionary channels of distribution have also emerged with information technology and the subsequent onset of online trading. People can access goods at a click of the mouse from numerous cyber shops from the comfort of their homes and have them delivered at their doorsteps. This greatly reduces the cost of distribution and transportation of goods and services and therefore price.
References
Mankiw N.G. (1990). Principles of economics, Orlando, The Dryden Press.
Venkatesh A. (1990). āThe changing consumption patternsā in S. Olin Poster, R. Kling (eds) in post urban California: The transformation of the Orange County since World War 2, 142-163. 2009. Web.