March 17, 2014
J. Carl Bowman
In economics, the law of demand and supply happens to be an important factor in the determination of the causes and influences to an economy. As a general rule, an increase in the level of demand will cause an outward shift in the demand curve leading to an upward pressure on prices. This continues until an equilibrium point is attained where further demand doesn’t necessarily lead to an increase in supply. This is the basic concept that has been used by economists in explaining circumstances such as inflation, expenditure, savings and consumption among other items.
The case of Postwar Baby Boomers
The swell in population immediately after war formed the mostly referred to as the baby boomers. In the mid and late 90’s baby boomers are seen to have started increasing their savings focusing more on their retirements. With the savings, the baby boomers went out to purchase financial assets and this led to an increase in the prices of stocks (Robert, 2009). Records have it that, as the baby boomers graduated from colleges they started to purchase items such as houses and financial assets such as stocks and bonds. The rapidly increasing population also demanded more healthcare services among other items. What we realize in this case is that, the rapidly increasing demographic changes caused an outward shift in demand, since more goods and services were required to support the rapidly growing population. Increased demand of financial assets led to a rise in the prices of stock market and a concurrent increase in supplies for mutual funds and stocks supplied in the market. The same concept can also be used to explain the cause of increased house prices early 20th century, as the baby boomers increased their savings to buy their dream houses and homes. The increased demand for houses caused an increase in supply and almost an automatic increase in the level of prices, as per the law of demand and supply...