Change Required in Buying Behavior to Push Back Inflation
By Farid Masood • Aug 9th, 2008 • Category: Politics, Worth A Second Look • 13 CommentsA man eats two eggs each morning for breakfast. When he goes to the grocery store he pays Rs. 12 a dozen. Since a dozen eggs won’t last a week he normally buys two dozens at a time. One day while buying eggs he notices that the price has risen to Rs. 16. The next time he buys groceries, eggs are Rs. 22 a dozen. When asked to explain the price of eggs the store owner says, ‘The price has gone up and I have to raise my price accordingly’ . This store buys 100 dozen eggs a day. He checked around for a better price and all the distributors have raised their prices. The distributors have begun to buy from the huge egg farms. The small egg farms have been driven out of business. The huge egg farms sell 100,000 dozen eggs a day to distributors. With no competition, they can set the price as they see fit. The distributors then have to raise their prices to the grocery stores. And on and on and on.
As the man kept buying eggs the price kept going up. He saw > the big egg trucks delivering 100 dozen eggs each day. Nothing changed there. He checked out the huge egg farms and found they were selling 100,000 dozen eggs to the distributors daily. Nothing had changed but the price of eggs. Then week before Eid the price of eggs shot up to Rs. 40 a dozen. Again he asked the grocery owner why and was told, ‘Cakes and baking for the holiday’. The huge egg farmers know there will be a lot of baking going on and more eggs will be used. Hence, the price of eggs goes up. Expect the same thing at Christmas and other times when family cooking, baking, etc. happen. This pattern continues until the price of eggs is Rs. 60 a dozen. The man says, ‘There must be something we can do about the price of eggs’.
He starts talking to all the people in his town and they decide to stop buying eggs. This didn’t work because everyone needed eggs. Finally, the man suggested only buying what you need. He ate 2 eggs a day. On the way home from work he would stop at the grocery and buy two eggs. Everyone in town started buying 2 or 3 eggs a day. The grocery store owner began complaining that he had too many eggs in his cooler. He told the distributor that he didn’t need any eggs. Maybe wouldn’t need any all week. The distributor had eggs piling up at his warehouse. He told the huge egg farms that he didn’t have any room for eggs would not need any for at least two weeks. At the egg farm, the chickens just kept on laying eggs. To relieve the pressure, the huge egg farm told the distributor that they could buy the eggs at a lower price. The distributor said, ‘ I don’t have the room for the %$&^*&% eggs even if they were free’. The distributor told the grocery store owner that he would lower the price of the eggs if the store would start buying again.
The grocery store owner said, ‘I don’t have room for more eggs. The customers are only buying 2 or 3 eggs at a time. Now if you were to drop the price of eggs back down to the original price, the customers would start buying by the dozen again’. The distributors sent that proposal to the huge egg farmers but the egg farmers liked the price they were getting for their eggs but, those chickens just kept on laying. Finally, the egg farmers lowered the price of their eggs. But only a few paisa. The customers still bought 2 or 3 eggs at a time. They said, ‘when the price of eggs gets down to where it was before, we will start buying by the dozen.’ Slowly the price of eggs started dropping. The distributors had to slash their prices to make room for the eggs coming from the egg farmers.
The egg farmers cut their prices because the distributors wouldn’t buy at a higher price than they were selling eggs for.. Anyway, they had full warehouses and wouldn’t need eggs for quite a while.. And those chickens kept on laying. Eventually, the egg farmers cut their prices because they were throwing away eggs they couldn’t sell. The distributors started buying again because the eggs were priced to where the stores could afford to sell them at the lower price. And the customers starting buying by the dozen again.
Now, transpose this analogy to the gasoline industry. What if everyone only bought Rs 200.00 worth of Petrol each time they pulled to the pump? The dealer’s tanks would stay semi full all the time. The dealers wouldn’t have room for the gas coming from the huge tanks. The tank farms wouldn’t have room for the petrol coming from the refining plants. And the refining plants wouldn’t have room for the oil being off loaded from the huge tankers coming from the oil fiends. Just Rs. 200.00 each time you buy gas. Don’t fill up the tank of your car. You may have to stop for gas twice a week, but the price should come down.
Think about it. Also, don’t buy anything else at the fuel station; don’t give them any more of your hard earned money than what you spend on gas, until the prices come down…’ just think of this concept for a while…………. …..please pass this concept around….reaching out to the masses…the world.
By Mr. Imran from UK
Trackback URL
|
|
|
Click For More Articles By Farid Masood
All posts by Farid Masood
You can follow any responses to this entry through the RSS 2.0 feed.
Fareed Sb! Very nicely written article. This idea should be floated widely. Such measures can reign the nefarious designs of the profiteers who are sucking blood of this hapless nation. Wish some prominent political parties or figures take up this issue and educate the masses to adopt this modus operendi to discourage lavish spendings.
Great article with a different view Farid
impressive and potentially fruitful.
It would depend if the inflation is “demand pull” or “cost pushed”. In case it is the cost of supply that’s culprit here, it just can not affect the rising price or if the supply is just meeting the real demands then also you can possibly achieve what you suggest. However, I do agree that in case of “artificial demand” one can influnce the prices and keep inflation in check by buying as consumed; moreover, in case of perishable commodities (like the eggs here or milk or vegetables, meat etc. a farmer can not horde them) you can force a reduction of price but eventually chase the farmers out of his business thus creating reduction in supply, eventually, and raising the prices.
Dear Mr Farid:
The above written article is an excellent example of how well capable our people are of couping with our problems. We just need to sit down and think about our problems instead of making a whole lot of useless racket about them.
The idea which you have floated over here is probably (pardon me if i am wrong) and idea based on the concept of “Consumerism”. The official definition of consumerism would be:
1) The movement seeking to protect and inform consumers by requiring such practices as honest packaging and advertising, product guarantees, and improved safety standards.(Reference:http://www.answers.com/topic/consumerism)
The idea of consumerism ha originally generated from the concepts of “consumer protection” , “consumer rights” and “consumer law”
The above mentioned definition of consumerism does not reflect the element of price hikes but the part where the definition states that “consumersim is a movement seeking to protect and inform consumers” is the key here. The consumers have a right to be protected from illegitimate price hikes or monopolistic price trends.
I would like to quote an example over here from countries of Euorpean Union where there are different consumer forums who protect consumer rights including the right to be protected against unecessary price hikes. If you find that you have been made to pay unfairly for a product/service you can go to one of these forums and lodge an official protest. The protest would then be processesd and would be publicized and people would avoid buying that product thus ending in a sort of a product bycott. This would eventually lead towards the lowering of prices of that particular product by the user (that is if he wants to stay in business)
In my point of view consumerism is all about collectiveness and staying together and fighting for your rights but in order to exercise these rights the government first needs to layout a platform for the people so that “THEY RELAIZE AND UNDERSTAND THAT THEY HAVE SOME RIGHTS”.
An excellent piece of writing Mr. Farid Massod,
Mohsin Mahmood
Dear farid,
Thanks for sharing it online.
Mohsin, Mr Farid Masood here is talking about ‘inflation’ rather than ‘consumerism’ and ‘consumer protection’. Inflation entails Macro Economic issues and is due to many other factors in the economy, in such situation the economic planners and regulators (the central bank and the economic planning division etc.) have to device and apply various mechanism to control this economic malady. It is much more than just price hike of a product / service at the whims of one or other suppliers or even by an organised cartel. Hopefully, you have a little better idea about the concept.
Agreed….!
Inflation is related to 2 things… Monetary Policy and Fiscal Policy. If both works properly, then we can curtail inflation otherwise…. STAGFLATION.
If economy is planned and run by incompetent people and there is political instability (like we have for almost a year and a half) then you have what economist call stagflation; a situation in which inflation and economic stagnation occur simultaneously. In addition to these political jokers at the helms of affairs we must also face another price shock (which is an international and unfortunately beyond our control) which is price of oil, ours being an importing country is hit bad. Such hikes (unanticipated, perhaps) in oil price has also contributed to our problem. It has further slowed down the economy
Basically stagnation and inflation are generally outcome of inappropriate macroeconomic policies.
Lesson is don’t try to fix something that’s not broken. We had a reasonably managed system in place and experienced respectable growth and then bang - we saw all these ‘democrats’ invading us like a curse. They neither have competence nor inclination to take care of the serious issues here.
Dear Mr. Aftab S Alam:
Thank you for your comments onmy version of what i thought Mr. Farid i said. I would not know about the economics of a nation as i am not the best suited to comment on this issue. Though i still stand by my point that the concept which Mr. Farid discussed over here not only pointed towards inflation but alos towards consumerism and consumer laws, becasue;
1) Quoting Mr Farid “He starts talking to all the people in his town and they decide to stop buying eggs” and that only happens if you have a forum where you can go and talk about the hiked prices and these forums are formulated by the government backed by the government laws on Consumer Rights and Consumerism.
2) The example of egg farmers which was given over here specifically pointed out towards the economic correlation of the “Demand and Price”, where the demand and the price are proportionate to each other, meaning if the demand goes up, so does the supply and vice versa. The scenario of bringing down the prices by decreasing the demand and creating a product back log can only be acheived if the consumers stand up for their rights, its going to be a collective effort not one which can be conducted on an individual one.
3) I personally think that every body in this country might not understand the economics of the inflationary situation in our country which i do agree is somewhat because of the inflationary trends world wide but i must empahsize and hope that you also agree to this fact that the inflation in our country is also largely contributed by high profit margins of business men and businesses and no one can stand up against them because there are no consumer right that protect the consumer, this in turn gives the businesses the leverage of pushing the high prices onto the consumer and adding his high profit margins to that already high price.
The importat point over here is that we all understand some aspect of the problem, i must agree that yes i do not understand the economics part of this problem too much but i understand the consumer aspect of it like wise you understand the economics of it and hopefuly together we can resolve this problem.
Thanks for your comments,
Mohsin Mahmood.
Hi Farid, perhaps I am missing something, here, because I don’t see how this works if the many small purchases of eggs, petrol, or whatever, add up to as much *per week* as the the former, fewer, large purchases. If the customers buy 1,200 eggs per week through making daily little purchases or through making weekly big purchases, the store owner will still purchase the same number of eggs per week from his supplier and will still maintain about the same inventory (assuming that the big purchases are spread out with different individuals choosing their wekly shopping days more or less at random). If anything, lots of little purchases would tend to drive the price *up* since the storekeeper might need to hire more clerks to handle the higher number of transactions, forcing a larger difference between the price the storekeeper pays his supplier and the price the storekeeper must charge the public to stay in business. Efficiency is the key to fighting inflation, I think - high-volume businesses with good economies of scale, good automation, and minimal unnecessary paperwork from government regulation or other reasons. With efficient operations, costs are lower at every level and competition will tend to drive prices down to just enough to stay in business. There is no magic formula, here - you can’t sustain an economy that provides product at less than it costs to make and to market. (You can subsidize the price by government action, but someone still pays, through taxes, just not the direct consumer. You can regulate the price to below the cost of production, but that just results in severe shortages and/or a black market at the true cost, and that does no one any good in the end, and makes the whole economy less efficient, tending to drive up prices for everything else.) Of course, you can easily make an economy *innefficient*, so prices *exceed* the cost of production - that tends to happen when we try to interfere with the free market. There are rare exceptions to this rule, mainly having to do with government taking a role in making sure that the *true* costs (including for example the costs to the environment) are part of the costs consumers pay, and I elaborated on this in http://www.pakspectator.com/capitalism-without-the-thorns/
Dear Mr Dan Tow
every where in the world there are interests of wealthy people spread all over the businesses, the same is the situation in Pakistan, (if we apply this concept to Pakistan) but the thing you rightly said is price regulation is not applicable here in Pakistan. Just one example, I purchase a shaving foam from a store in big city which costed me Rs 75 (USD 1.05 aprox.) the same foam i purchased from a relatively small city costed me Rs 100 (USD 1.39 aprox). the store selling it in Rs 75 is surely earning something from it, but the store selling it in Rs 100 is earning more than allowable limit, but government is actually unable to fix and ensure the allowable profiteering. So there is element of fake inflation of commodities, Once sugar was Rs 18 per KG in a week time last year it risen up to Rs 42 kg, no demand increased nor production decreased, how prices went up is hoarding by influencial politician in sugar manufacturing business. they made millions then the price of sugar came down to Rs 32 per kg (now a days) but never return to Rs 18 or Rs 20 per kg.
second thing government has no means of income, how they can subsidize items, previous government was earning by selling Cash Cows http://www.pakspectator.com/selling-the-cash-cows/
which was again a negative approach, government is earning from fuel and it has direct impact on freight charging.
coming to the point of article, there are families who are well to do financially, when they purachse commodities they dont bother for their quantities of purchase and quantities of consumption (not by their selves but also due to their links and meetings, they also dont bother to purchase (not required) items. This behavior put pressure on Production thus prices are increased. Government has no control over what should be imported as per requirement.
[...] an article sent by Mr Imran by presenting an option to adapt <a href=“http://www.pakspectator.com/change-required-in-buying-behavior-to-push-back-inflation“> required change in buying behavior to push back inflation</a> may give better [...]