In terms of primary economic growth indicators, the outlook for US economic growth is favorable. The poor growth of the gross domestic product (GDP) in the United States is a macroeconomic issue. The GDP is an important economic growth metric for any country, and the United States is no exception. The GDP provides information about a country's production output. The US GDP increased to around 1.9% in the fourth quarters of 2016 and 2017; it is predicted to reach around 2.1% in 2018. Inflation, unemployment rates, interest rates, oil and gas prices, pricing of other goods and services, and GDP are all examples of economic growth factors. The US has been experiencing alarming unemployment levels (Arnold, 2014). The increasing unemployment has been pegged on the loss of jobs to other countries across the world that offer cheap labor that translates into lower costs of production. In this analysis paper, we examine the theory of demand and supply as well as how it affects employment levels and economic growth.
The law of the application and supply states that demand increases as prices of goods and services decrease and vice versa. Conversely, supply increases as price increases and decreases as price decreases. The current situation in the United States results from the stringent business regulations particularly on the environment issues and high corporate taxes that have created a business climate that is no longer attractive to the potential investors (Arnold, 2010). The decision by various investors such as Carrier to move their businesses into Mexico is a pattern that informs the practicability of the theory of demand and supply (Dwivedi, 2010). Because of the minimum wage and uninteresting business environment in the US, investors prefer producing their goods in other countries that offer relatively lower wages due to cheap labor hence they are in a position to sell their products to the US citizens at a price that is affordable. Producing goods and services in the US is unfavorable for most US companies because of the high production costs that they incur both concerning regulations and regarding taxes.
As a matter of economic principle, consumers often want to maximize their utility and minimize expenses. The implication is that consumers will buy products that are of high quality and affordable. It, therefore, means that companies that operate from within the US do not have the privilege of offering cheaper products than their rivals' offer, a phenomenon that may put them out of business (Arnold, 2010). Globalization has significantly transformed the world into a global village making competition in both national and international market more stiff than before. The trend here is that firms that produce their products in the US sell their products at relatively higher prices than those that produce outside the US and sell their products back in the US (Dwivedi, 2010). Consequently, the cost of production factor favors those firms that operate overseas because it translates into the prices for which they sell their products.
The primary focus of any business is to break even and make some profits from its production activities (Dwivedi, 2010). The profit is a product of sales and cost of sales, meaning that a firm that incurs higher production costs will automatically strive to recover such costs from sales hence higher prices than one that incurs lower expenses in the manufacturing process. The aspect of a business environment that does not favor business growth means that the country cannot attain higher GDP because of small production activities (Arnold, 2014). Similarly, the rate of employment is decreasing because as the number of job seekers increases, the number of job opportunities remains relatively constant. Moreover, consumers tend to prefer goods and services for companies that produce their products than ones that operate locally because their goods are fairly cheaper than are local firms.
The prices settle at an equilibrium point where the forces of demand and supply in the market. When the supply is low, demand tends to exceed supply forcing prices to go up. On the other hand, when the supply of a commodity is high, demand tends to decrease thus exerting a downward pressure on the price. Regarding labor, firms tend to prefer locating their businesses in areas where the workforce is abundant than where it is scarce (Dwivedi, 2010). The economic logic behind such a decision is that where there is abundant labor, wages tend to be lower than in areas with fewer workers, hence, the higher the supply of labor the lower the wages and vice versa.
In conclusion, it is practical to apply the theory of demand and supply in explaining the current macroeconomic situations in the United States that relate to slow economic growth rate and increasing unemployment rates (Arnold, 2014). It also helps account for the tendency of its firms to produce their products overseas or outside the US boundaries and later send them back into the US for relatively lower prices than the prices that of their rivals operating from within the United States.
References
Arnold, R. A. (2010). Macroeconomics. Mason, OH: Cengage Learning, South Western.
Arnold, R. A. (2014). Economics. Melbourne, Vic.: South-Western Cenage Learning.
Dwivedi, D. N. (2010). Macroeconomics: Theory and policy. New Delhi: Tata McGraw Hill Education Pte Ltd.
