Wednesday, June 25, 2008

TV's Shrink in the Big Economic Picture

This is an interesting article about the waning demand for luxury items in the face of increasing food and energy prices, specifically what the article refers to as "the Humvee of TV's - the 46-inch-and-above, $3,000.00 plus flat-screen high-definition set". Industry analysts are finding that people are spending less on TV's overall, however, some are shifting spending away from luxury models to smaller sizes and concentrating on lower-priced models. The demand curve for higher priced TV's has essentially shifted left. This has led to an increase in supply. Riddhi Patel, an iSuppli TV Analyst, states that "inventory levels are at 8 weeks, which is very high."
What will be the result of this decrease in demand and an increase in inventories? The equilibrium quanitity and price will decrease. The prices on these luxury TV's will have to lower to clear the inventory, and many firms will have to cut back on production to adjust to the decreased demand. But industry analysts are hoping that the lower prices would stimulate more demand for these items, especially in the wake of increased travel costs. With gas at or exceeding $4.00 dollars a gallon in most places, maybe buying a cheaper big screen TV later this summer and staying home and watching a movie located at the beach will be just as nice as being at the beach.

2 comments:

Nathan Eschbaugh said...

The article makes a great point when talking about the fact that demand may start to increase as price drops due to the cost of everything else. With the economy though most people are making decisions to cut costs one way or another and with most people it would start with luxury items such as a gaint TV. This is obviously what is happening in the article and I would be willing to bet the their are other luxury goods that are decreasing in demand due to costs going towards basic needs.

Jessica Hutchison said...

I agree with Nathan that people are trying to get ride of luxury items, but when people by a big TV they usually buy it in full. So getting ride of the TV would actually not be benefiting them at all. However, people paying monthly for things like Tivo or direct tv might be willing to cut those costs. By cutting these montly costs increases the amount you can spend on neccesity items.