• Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

Macroeconomics Commentary - Japan's consumer prices fall on weak domestic demand

Extracts from this document...


IB Economics ? Internal Assessment Front Cover School code Name of school Candidate name Stellar Candidate number Teacher Chen Zhen Title of the article Japan's consumer prices fall on weak domestic demand Source of the article BBC News Business http://www.bbc.co.uk/news/business-15884340 Date the article was published 25/11/2011 Date the commentary was written 27/11/2011 Word count (750 word maximum) 747 Section of the syllabus the article relates to (please tick the one which is most relevant. Section1: Microeconomics Section 2: Macroeconomics Section 3: International economics Section 4: Development economics Japan's consumer prices fall on weak domestic demand Japan's consumer prices have fallen for the first time in four months, as weak domestic demand and deflation continue to weigh on growth. Core consumer prices, which exclude fresh food, slipped 0.1% in October, the statistics bureau said. One of the reasons for the fall is last year's cigarette tax rise falling out of the calculations. The strong yen as well as Europe's debt crisis are hurting the growth outlook for the world's third-largest economy. Yen strength In March, Japan was hit by a devastating earthquake and tsunami that caused much damage in the north-east of the country. ...read more.


Cigarette tax depressed the activity of market and placed a wedge. Producers gained less profit and consumers paid more. Hence the total quantity reduced from Q1 to Q2, as figure shown below. Tax charged on producers equilibrium without rising tax The increases in price that consumers paid reduced the willingness to buy. The demand curve shifted to left from D to D1 as figure shown below. Hence the quantity demanded reduced from Q2 to Q3 and price of cigarette reduced from P2 to P4. Tax affects demand indirectly Less quantity demanded of cigarette means less quantity sold at the price lower than without tax. Therefore even lower government revenue collected. What have discussed above would repeat itself as a cycle if Japan government continues to rising cigarette tax. The results of higher cigarette tax combined with several other factors together to reduce the aggregate demand in Japan market. The economy was near full employment level of output, with a small amount of spare capacity. The figure below indicated that as aggregate demand curve shifted to left, the quantity of output and average price level reduced. ...read more.


If value of exchange rate is high, then export industries find it is difficult to sell products because foreigners are likely to reduce the quantity imported since goods become more expensive. Therefore, lower the revenue from exports, slower the pace of recovery. The fell of average price level (deflation) can also be explained by the high exchange rate. When value of exchange rate is high, price of imports will be relatively low. Taken import of oil as an example, the gasoline prices have dropped 1% since September. In addition, price of imported raw materials will reduce the costs of production for firms which could lead to lower prices for consumers. Low price of imported goods also puts pressure on domestic producers to be competitive by keeping prices low. Japan?s government could lower the value of yen by means of buy foreign currencies on foreign exchange markets. Government uses its own yen to buy hence increases supply of yen on foreign exchange market and so lowers its exchange rate. Lower the level of domestic interest rates could lower the value of yen too. This will cause financial investment abroad more attractive. In order to invest abroad, investors will buy foreign currency thus exchanging their own currency and increasing supply of it on financial exchange market. This could lower its exchange rate. ...read more.

The above preview is unformatted text

This student written piece of work is one of many that can be found in our International Baccalaureate Economics section.

Found what you're looking for?

  • Start learning 29% faster today
  • 150,000+ documents available
  • Just £6.99 a month

Not the one? Search for your essay title...
  • Join over 1.2 million students every month
  • Accelerate your learning by 29%
  • Unlimited access from just £6.99 per month

See related essaysSee related essays

Related International Baccalaureate Economics essays

  1. The Economics of Housing. Factors affecting prices and demand.

    Year 2003: From the graph figure we see that, there is a very small fluctuate in house prices in all the year. The average price of house in jannuary-2003 was �123,073 in all UK and �249,246 in greater London. In December the price changes to �137,684 in all UK and �258,221 in Greater London.

  2. IB Macroeconomics Commentary

    Payrolls will shrink by several million more jobs during the remainder of this year and next, Dhawan predicted. Georgia, where job growth was especially strong in sectors related to real estate, the burst of the housing bubble has been traumatic.

  1. IB SL Economics Commentary: Macroeconomics

    This decrease in demand would be useful in controlling inflation once recovery had occurred. However, in the present, the Bank of Canada is likely to concern itself with slowly increasing the money supply, and keeping a stable overnight rate. It is unknown whether the stimulus package is the cause of

  2. Economics Essay on Supply and Demand and the operation of markets.

    The consumer then decides demand and supply, so the good is given in higher demand. Another instance that leads to the best allocation of resources is a term called ? Price signal.? This is an indication signal for producers to increase supplies so that it can keep up with the

  1. DEMAND- What affects the level of demand?

    This is because the consumers start buying substitute goods of higher price as they can afford it now with an increase in income. Thus this causes the demand curve to shift to the left.

  2. Economics Commentary- Prices of onions jumped yesterday, buoyed by a ban by India on ...

    This will result in lower onion prices in India, and hence Indian consumers will benefit. On the other hand onion being a necessary commodity will have an inelastic demand (when for a certain percentage change in price, the quantity demanded will change less than proportionate.)

  1. 15 Historical Economic Questions on Mercatilism and the Development of European Countries.

    The textile industry brought profits to the European economy, as everybody needed clothes to wear. Also the newly efficient methods of textile productions allowed for modest pricing and in turn, even higher demand. The industry was one of the first to take the spotlight from agriculture and as it expanded it brought benefits through trade.

  2. Commentary - This article talks about the clear and significant rise in price of ...

    continue buying it, and the lack of good substitutes, among other things. However, the inelasticity of coffee has the consequence that consumers need to cut down on their other expenses. This connects to the concept of opportunity cost. This is the cost of an alternative that must be forgone in order to pursue a certain choice.

  • Over 160,000 pieces
    of student written work
  • Annotated by
    experienced teachers
  • Ideas and feedback to
    improve your own work