The article selected is “Free American Economy: Uh-oh” by The Economist published online on May 29 th , 2015. From the article, the first key point identified is that the American economy shrank during the first quarter of 2015. Further, it states that economy contracted at a rate of about 0.7 percent per annum in 2015 which was in contrast to an increase of approximately 2.2 percent during the last quarter of the year 2014. The second point is that retail sales have also stumbled despite the fall in oil prices, raising more worries among those individuals who believed that the economy of US was struggling (The Economist, 2015) .
Thirdly, the articles argue that the strong US dollar was also hurting where exports fell by about 8 percent while import rose by about 6 percent sucking demand from the US economy. Fourthly, the article states that corporate profits were experiencing a downward trend where they fell by about 6 percent within the first quarter of the year 2015. According to the Economist (2015) , there is a mounting fear as expressed within the article that a severe slowdown may be overblown. The other major point is that GDP growth in the first quarter of the year 2015 was at a rate of 6 percent compare to about 3 percent within the three-quarters of the same year.
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The concept of demand and supply will be used to analyze the major points outlined above. Demand is the quantity of goods desired by customers and supply is the total quantity of commodities that the market can offer. The relationship between demand and supply tend to mirror each other at an equilibrium price where the quantity supplied and quantity demanded tend to intersect (Cachon & Lariviere, 2001) . Demand and supply play a vital role in the US export and imports. The change in the economic growth rate and national income has a significant impact on the total amount of goods and services that US imports and exports. From the article under analysis, the strong US dollar was hurting as a result of exports falling by about 8 percent and import rising by about 6 percent hence sucking demand from the US economy. According to Cachon & Lariviere, (2001), economists state that as the GDP growth and consumer income rises, follows that the purchases of commodities will increase significantly. The increased consumption, in this case, will be composed of the imports. Therefore, it implies that there is a positive link between the US economic progress and the level of imports. The US economy, in this case, experienced a fall in their export by about 8 percent, and imports rose by 6 percent implying that the US economy was growing relatively faster compared to their trading partners resulting in a decline in their net exports.
From the article, retail sales have stumbled despite the fall in oil prices (Cachon & Lariviere, 2001) . This only points out that the cost of production among the retailers had increased significantly, and this was transferred to consumers through increased cost of commodities, and this could have affected the US export market. As the cost of production increases, commodities offered in the market as exports will be costly resulting in reduced sales volume among the retailers. The US experienced a fall in oil prices implying that the cost of production in the economy should have reduced, but this did not increase retail sales possibly because of the high cost of commodities offered in the market (Kilian, 2006) .
The concept of supply and demand has a significant effect on the US economy in various ways. The US economy often makes economic choices on what to produce, how to produce and to whom to produce the goods and services. According to Kilian (2006) , the market, using forces of demand and supply provides solutions for these questions. In the global market with prevailing competition condition, the market forces of demand and supply determine the prices of commodities, what to produce and who can afford these products. Evidently, demand and supply have been argued to play a vital role in the US export and imports.
Supply and demand mechanism in the US economy has been shown to offer what is believed to be the most efficient economic outcome. Further, they determine the US export and import which determine their GDP (Cachon & Lariviere, 2001). Further, mismanagement of supply and demand will have a serious impact on the US economy regarding taking the country from their economic objectives. The US, therefore, tries as much to maintain their production level based on the market demand to avoid overproduction. There is the need for the US economy to manage their supply and demand efficiently based on the market trends to ensure that they only provide what is demanded in the market. This will ensure that the country achieves an equilibrium in the demand and supply which will have a significant influence in the country’s imports and exports which will determine the direction of the country’s GDP.
In conclusion, I strongly agree with the author’s comment that the American economy shrank in the year 2015 as a result of several factors that were taking place within the economy. For instance, based on the statistics provided, the economy had contracted at a rate of about 0.7 percent per annum pointing towards a shrinking economy. Further, the retail sales had dropped which also implies a staggering economy and the US dollar was also hurting because the US exports fell by about 8 percent and import rose by about 6 percent sucking demand from the US economy. Additionally, corporate profits dropped, and country’s GDP dropped from 6 percent to 3 percent all pointing towards the direction of a shrinking US economy.
References
Cachon, G. P., & Lariviere, M. A. (2001). Contracting to assure supply: How to share demand forecasts in a supply chain. Management science , 47 (5), 629-646.
Kilian, L. (2006). Not all oil price shocks are alike: Disentangling demand and supply shocks in the crude oil market.
The Economist (2016). “The American Economy: Uh-oh.” Economist.com . Retrieved from:
http://www.economist.com/blogs/freeexchange/2015/05/american-economy
