Demand for commodities changes due to shifting individual and group tastes. Changes in tastes of consumers in favor of the commodities lead to a positive shift in demand while unfavorable changes in tastes results in weak demand hence reduced sales. The effect of changes in tastes on demand is crucial for every economist since economics is concerned with demand and supply both in the long and short run. Thus, understanding shifts in demand is vital in a making current and future business decisions. Knowledge of demand changes is also essential to business owners and potential investors. Owners and investors can project future changes in demand and make adjustments that are suited to their needs.
Summary 1
The article “Slimming down” (The Economist, 2015), assess the challenges facing America’s processed foods giants like McDonald’s and Nestle due to changes in consumer tastes. Policymakers, as well as the public, are increasingly demanding for natural foods from processors. After enjoying success in past years due to popularity in demand, this shift in demand is hurting sales. Consumers are also becoming sensitive to pricing, thus choosing supermarket brands that are less costly. These changes have resulted in reduced sales for leading food processors. In an attempt to cut costs and maintain relevance in the market, some changes have been effected. PepsiCo and General Mills have closed some of their factories and undertaken downsizing (The Economist, 2015). However, the most appropriate solution for the firms seems to be the acquisition of smaller but rapidly growing brands that provide healthier foods to their customers. For example, Coca-Cola has acquired Innocent, a juice manufacturer while General Mills has acquired Annie’s (The Economist, 2015). Changes in demand for processed foods continues to force cost-cutting measures and consolidation in the industry.
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Mankiw’s Principles of Economics
Mankiw's principles of economics relate how people and markets interact to create balance in the economy. The scarcity of resources is the driving force of economic decisions. Consumers, producers, and government make financial decisions with knowledge on the scarcity of resources and the effect of these decisions on their revenue (Mankiw, 2018, p. 5). The article "Slimming down" (The Economist, 2015), states various facts that resonate with Mankiw's second and fourth principles of economics.
The second principle of economics states that the cost of an item or commodity is whatever the person or institution gives up to get it (Mankiw, 2018, p. 22). Explained regarding opportunity cost, acquiring an item means that some effort or resources are channelled towards getting it. Additionally, alternatives have to be foregone to get the item. About the article, consumer’s decision to shift to healthier foods has its foregone cost. The article explains that consumers of natural foods have to part with slightly more money than their counterparts who purchase unhealthy foods. As a result, changes in taste to natural foods implies that the consumer has to forego the money that he or she would save to enjoy the benefits of healthy foods. Furthermore, the decision by major processed foods manufacturers to eliminate artificial flavors and coloring from some of their products has its cost. Customers who preferred the products due to the flavors and tastes will no longer find it necessary to purchase the products. Hence such a decision means that the processor foregoes the needs of this kind of customers. Another aspect of Mankiw’s second principle that is evident in the article is the need for major manufacturers to acquire smaller producers of natural foods. Though expensive, the endeavor is necessary for the companies to remain relevant in a changing market. Thus, the companies have to give up a significant percentage of their resources to acquire the organic foods companies.
According to the fourth principle of economics, incentives sway the decisions of consumers (Mankiw, 2018, p. 16). People are compelled to act either to counter changes in the market or to conform to popular beliefs or personal needs. For example, increase in popularity of an item in a particular region may translate to more sales in other regions. About the article, consumers are influenced by popular figures and media houses to ditch unhealthy foods for organic brands (The Economist, 2015). Such incentives have caused the sales of brands like MacDonald's and General Mills to decline. Campaigns for a healthier living have also influenced consumer decisions to purchase more of organic foods.
Summary 2
"How Merkel's Green Energy Policy Has Fueled Demand for Coal" by Parkin & Zha (2017), explains how government policy has led to an unprecedented increase in demand for coal in Germany. In the town of Poedelwitz, there is a rush to exploit the underneath coal resources before policies on green energy take full effect (Parkin & Zha, 2017). The government plans to slowly change the country's energy sources to full renewable sources. However, in the short term, the effect has been undesirable, with continued high demand for coal in electricity producing plants. However, the situation is not all bleak because major strides have been made in increasing the supply of renewable energy. Although forty percent of the country's electricity is from coal (Parkin & Zha, 2017), a significant increase in wind, biomass, and solar energy indicates that the policy is working. Carbon emission is also a problem that the country intends to solve. In spite of the effort, current demand for coal remains high.
Summary 3
“ The strange geopolitics of rising oil prices” in The Economist (2015), explores the pricing of oil in the world market by oil-producing countries. The price of oil has maintained a two year high thanks to the effort of producers to control supply. The producers stifle supply to keep demand high, hence charge higher prices on the world market. The OPEC cartel intends to collaborate with non-members to limit supply to keep prices at $60 per barrel (The Economist, 2017). Despite occasional political squabbles between producing countries, they often agree on policies to keep prices high. Apart from policies by oil-producing countries, increase in prices can be attributed to positive growth in global economies thus keeping demand high.
Comparison
Parkin & Zha (2017), partially disagrees with the initial article on tastes and policies reducing demand for processed foods. In this case, demand is seen to increase due to policies to change to renewable energy sources. The shift is attributed to the rush to utilize the coal resources. The article on oil prices, on the other hand, agrees with the initial policy. Just like incentives and policies have led to increased demand for natural foods and the willingness to pay higher prices, oil consumers are willing to pay high prices due to high demand.
Conclusion
Changes in consumer tastes and preferences significantly influence demand for commodities. Interestingly, established brands like McDonald’s and Coca-Cola remain at the mercy of influencers and consumers, despite their vast market command. Failure to make adjustments according to market demands can spell doom to these brands. However, the influence of taste on demand can easily be countered by the processed food giants due to their vast resource base. Their ability to acquire competitors explains their power in the market. Through advertising, they can counter negative influences to the demand for their products.
References
Mankiw, N. G. (2018). Ten principles of economics. Principles of Economics , 3-30
Parkin, B., & Zha, W. (2017, September 21). How Merkel’s green energy policy has fueled demand for coal . Bloomberg Businessweek . Retrieved on 28 February 2018, from https://www.bloomberg.com/news/articles/2017-09-21/how-merkel-s-green-energy-policy-has-fueled-demand-for-coal.
The Economist. (2015). Slimming down . The Economist . Retrieved on 28 February 2018, from https://www.economist.com/news/business/21650155-americas-processed-food-makers-are-having-adapt-declining-popularity-slimming-down?zid=318&ah=ac379c09c1c3fb67e0e8fd1964d5247f.
The Economist. (2017). The strange geopolitics of rising oil prices. The Economist . Retrieved on 28 February 2018, from https://www.economist.com/blogs/economist-explains/2017/11/economist-explains-19?zid=298&ah=0bc99f9da8f185b2964b6cef412227be.
