Elasticity and Government Policies in Thesis

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The article gives the example of China, where as much as $360 billion were allocated by the government towards the process of stimulating demand on the market. The process did not target only the car manufacturers, but rather all industries, while the instruments of actually putting the money to use ranged from fee vouchers to direct stimuli for the businesses. Countries such as Germany or the U.S. put in more money than Britain into stimulating the car industry, important in the overall national economy of these countries and, at the same time, a potential social issue.

However, as the author pointed out, this was not the case in Britain, where the amount of money allocated for boosting supply was significantly lower than in these other comparable economies. The process of exchanging an old car for a new one, referred to as the "car scrappage scheme," was given only 400 million pounds of governmental financial backing. The reason why this happened was that the British government decided to spend much of its available funding to combat the economic recession on the support of the bank, that is, on the support of the supply side rather than on that of the demand side.

Supporting the banks meant that companies could continue to take out loans and, thus, support their investments in the business, into anything from research and development to creating and supporting new markets.

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However, with a low demand, supply and production would actually be limited, because there would be a low number of customers ready to buy the products and services that these companies make.

The results of such a campaign also translated into a decrease in production output, while many of the other developed economies are already growing out of the economic recessions with the governmental programs to stimulate demand rather than supply. So, the shit in the demand curve did occur in Britain as well (as the graph below shows), but, because of the very low amount of money used for the stimulus, it was a small shift and one that did significantly impact and encourage the rebound of the British economy. As mentioned, the article shows that a greater governmental stimulus produced better results in other economies, where the shift in the demand curve was more visible and where this shift triggered along the coming out of the economic recession......

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