Essay Example on Demand is dependent on the Tastes and Preference

Mitigating factors to consider is that demand is dependent on the tastes and preference of consumers meaning that a decrease in demand for hotel rooms or an increase in demand for Airbnb is difficult to predict as tastes and preferences vary amongst consumers Undeniably as microeconomic theory suggests every decision carries a degree of opportunity cost Begg and Ward 2016 p 9 A look at the decisions faced by landlords in the housing market to more efficiently allocate resources by pursuing the more lucrative short term rental market where they have flexibility to change the price and availability rather than fixed long term rentals to tenants Zee 2016 However the increase in frequency of guests carries an increased risk of wear and tear on capital investment which can have a devaluating effect Coppola 2016 Equally important is that opportunity cost especially in times of scarcity in the market affects consumers who for example need to pay more for housing rental reducing disposable income and affecting demand of other goods and services 

These factors contribute to the macroeconomic factors of national income personal consumption and domestic investment Macroeconomics Analysts at Credit Suisse denotes that About half of total GDP is composed of sectors which are significantly affected by sharing It must be noted that although no systems have been developed to measure the contribution of the sharing economy toward GDP analysts believe the sharing economy's impact on GDP can be rationally estimated Feubli and Horlacher 2015 and may even reduce total GDP Hwang 2014 When considering the impact of Airbnb from macroeconomic perspectives Say's law implies that supply of goods and services will lead to increased consumer demand Kates 1997 Khan 2018 that will benefit various industries throughout the economy

er demand Kates 1997 Khan 2018 that will benefit various industries throughout the economy Earlier analysis of microeconomic factors of the impact demand and supply indicate that Airbnb has through enhancing the utilization of Factors of Production FoP Fig 8 increased productivity a prominent measure for Gross Domestic Product GDP Enhanced productivity generates improved income and profits As illustrated in the Circular Flow of Economic Activity Fig household contributions such as labor and capital to the resource market produce returns in the form of income and wages Equally growth in household income strengthens consumer purchasing power consequently generating demand for goods and services and so setting the circular flow in motion 

The illustration below provides a good interpretation of Say's Law, In contrast, Keynes Law indicates that demand creates its own supply Khan 2018 This too requires consideration It is logical to assume that where there is a demand for specific goods or services that production specific to the demand will eventually occur through the various FoP s often through government intervention Fig 11 However considering the limits faced by economies on how much they are capable to produce will result in partial success Kates 2016 Khan 2018 Another factor to consider is that SET provides the aggregate workforce with an alternative or supplementary employment Although this alternative may result in an increase in aggregate household income the risk of a decrease in aggregate labor supply is likely as the benefits of microentrepreneurial jobs become more attractive

ate labor supply is likely as the benefits of microentrepreneurial jobs become more attractive This will encourage a shift in workforce behavior as employees consider pursuing enterprise triggering a shortage of labor in the market as a result Consequently employers will increase wages to attract new talent which will return the market to a new point of labor equilibrium However the increase in wages would compel employers to increase the price of goods and services in order to cover the additional expense creating circular wage push inflation The increased household spending power will escalate the cost of living in the broader market rendering the initial wage increase irrelevant requiring additional wage increases 

These wage and price fluctuations are factors in the economy that drive inflation Without proper regulation similar to the effect of demand-pull inflation prices would continue to rise raising interest rates restraining borrowing and suppressing consumer demand further impacting on GDP Conclusion In conclusion the impact of SET has made a positive contribution to both society and economy through connecting consumer demand directly with supply Economist 2013 thus creating an opportunity for households and businesses to maximize capital utilization and other factors of production

The consequent improvement of household income supports a positive contribution to the economy by increasing demand for goods and services As SET s contribution to GDP is undefined measurement practices would need to change to keep abreast technological advancement Feubli and Horlacher 2015 p 16 Furthermore SET has played a role in diversifying the market pioneering innovation for the development of new and improved products and services Likewise SET encourages enterprise which fuels job creation and reducing structural unemployment Begg and Ward 2016 p 265 Therefore the sharing economy industry would require some form of regulation if it is to continue to successfully contribute to the economy