11/23/2008

Charity

Yesyesyes, I know I am very late, but in Russia we say "Later is better than never". ^^
aww, it's my personal homework)

The point is that people who do not spend their money on something, preferring to keep the money, leave the things they haven't bought to some other people. So the world gains from those people. So, if there is more supply (because miser people don't spend their money on the goods) with demand staying the same, the price will go down, so more people will be able to afford it.

1. People don't spend their money and yet demand stays the same. Why will price fall?
Uhm. Well, first of all, if people do not spend their money on goods that means that producers don't have profit. But people actually have the money (but they keep this money as savings) and don't buy the goods. So the demand in this case is latent. To attract people, they will cut prices or advertise goods.
But, as I remember the book, miser people don't buy things which are actually produced for them. So when they don't consume those goods, they enable those goods to be consumed by someone else, therefore, it will be a shift of the supply curve to the right. Ceteris parabis, extension of the demand curve, new equillibrium price is lower than the original one.

2. if demand falls why will there be more supply, not less?
I'm not sure about this one, but I'll try..
People prefer to keep their money as savings, which means that it is not involved in the circular flow of income, therefore, it is not shown in the demand curve. As more people prefer to increase their savings, the demand curve will shift to the left. But, as I said, people who keep money as savings actually just don't consume the part of goods that were supposed to be consumed by them. Those goods are now available for others - more supply.

3. How can it be charitable NOT to support charities?
Supporting charities means giving money to someone to spend them instead of you. There is no guarantee, by the way, that those money will actually be spent on the charity.
But the point of that chapter was that miser people are the most charitable. How can it be? I will explain.
So, as I have already said, savings are out of circular flow of income, as savings are one of the so called 'leakages'. The other two leakages are taxation and imports, but that's not the point. As those money are not into the actual economy, that means that there is less money in the economy - the value of each currency has now increased. So poor people have now become a little bit richer as the value of their money they own has increased.
That's how miser people actually help the poorer ones.

5 comments:

chris sivewright said...

Read:

http://efbusinesseconomics.blogspot.com/2008/11/attention-all-economics-students-at-ef.html

beaupre said...

Dear Mary!!!

I could you please send me a link for the crack for the mindmap that Chris asks us to use, if you have one?

I would be very greatfull if you could send it on me e-mail

jan.beaupre@gmail.com

Kind regards

Jan Beaupre

Mary said...

check your e-mail, Jan :)

hiya said...

Sorry, is this a student from EF?
http://www.wretch.cc/blog/f22824275

It is surprising..

beaupre said...

Thank you for your help!