Supply and demand is a crucial concept of economics. It is regarded as the backbone of all the marketing theories that apply to every business organization in the corporate world. For instance, cosmetics industries all over the world are affected by the inevitable forces of demand and supply (Becker, 2017). The United States of America is one of the largest cosmetic markets in the world. In 2017, the global cosmetic market hit a whopping figure of $532.43 billion, and it was projected that the market would register a Cumulative Annual Growth Rate (CAGR) of 7.4% from 2018 to 2023 to reach $805.61 billion. The USA has a lion share - fourteen percent -of this market and is expected to register a CAGR of about 3% from 2019 to 2024 (Turner, & Knoepfler, 2016, p. 155).
The rapid growth of this market is attributed to several factors which include the soaring demand for natural cosmetics, a burgeoning number of beauty clinics, the increase in the number of working women, and penetration of global brands -L'Oreal and others -into the USA (Turner, & Knoepfler, 2016, p. 155). Other factors that are expected to propel this market include strong government policies on the production and use of cosmetics, the increasing willingness of people, especially the youth to spend more to enhance their appearance, and the existence of local firms like Aveda, MAC, Paul Mitchell, and Claire which are determined to succeed in the highly competitive market.
Noteworthy, the factors that affect the growth of the market revolve around the classical theory of demand and supply. Demand is defined as the quantity of merchandise that consumers are willing and able to buy at particular time and price while supply is the quantity that producers are willing to bring to the market at a certain price and time. From these basic definitions, it is clear that the amount is treated as a vital factor that affects demand and supply. However, both demand and supply are influenced by other factors other than price and time. Price of related goods (supplementary, complementary, and substitute goods), consumers' income, tastes and preference, and anticipation of changes in rate are the other factors that affect demand. On the other hand, supply is affected by government policies, advancements in technology, size of the market, and expectations of changes in price (Becker, 2017).
A deeper appreciation of the factors that affect both demand and supply leads to the demand and supply laws which are best represented in respective curves. A demand curve relates to the quantity demanded and price. When the price of a reasonable increase, the demand reduces ceteris paribus. Changes in price thus lead to either downward or upward movement along the demand curve or a supply curve (Becker, 2017). When other factors like government regulations, for instance, the imposition of heavy taxes, there can be changes in either the demand or supply curves even if the price remains constant. The whole curve may shift either to the left or right depending on the effect of the factor.
As mentioned earlier, the use of cosmetics among teenagers and young adults in the United States of America has been on the rise, providing excellent opportunities to companies that deal in cosmetics. Claire Accessories is one of the oldest Jewelry and Cosmetics retailer in the USA. Claire mainly stores makeup, toiletries, and other items that young ladies use to enhance their beauty and appearance. As expected, Claire experiences very stiff competition from other retailers of similar products. The demand of their products, for instance, Claire's Eye Shadows; Claire's Compact Powder; and Claire's Contour Palette, is affected not only by their prices but also by the prices of other related products from other retailers, government regulations, and other typical factors that affect demand.
A post that appeared in the US daily newspaper, "The New York Times" on 5th March 2019, reported that Claire's makeup products were contaminated with asbestos. Foods and Drugs Administration (FDA), a federal body that is mandated by the US government's Health and Human Services (HHS) unit to oversee the production, distribution, and sale of pharmaceuticals, foodstuffs, medical apparatus, veterinary medicines, tobacco and other products claimed that Claire was selling makeup product that had some content of asbestos (Hsu, 2019).
The F.D.A., which received its test results in February, said Claire's refused to recall the products. The agency issued a safety alert urging consumers not to use certain eye shadows, compact powders, and contour palettes. The regulator's test results "show significant errors," Claire's said in a statement, adding that the items identified by the F.D.A. had been "extensively tested by multiple independent accredited laboratories" in early 2018 and were found to follow safety regulations. (Hsu, 2019).
Prohibitive government policies may immensely affect the demand for a product. In this case, Claire will experience a drastic drop in the demand for the products that FDA enlisted and warned consumers not to use. A proper analysis of Claire's situation would involve a more in-depth analysis of product elasticity.
In simpler terms, elasticity refers to the measure of the responsiveness of a variable to the change of another variable. From a business and economics standpoint, elasticity refers to the degree by which consumers or the suppliers of a product would change their demand and supply respectively due to the changes in price, income, or any other factor affecting the product. It is transcendently used to evaluate the adjustment in buyer demand because of an alteration in a good or a service cost. Consequently, a product is said to be elastic if there is a corresponding fall or rise in it its demand with an increase or decrease in its price. Conversely, if the fluctuations in price lead to little or no change in the quantity demanded of the product, then the product is said to be inelastic. It is conceivable that this version of elasticity only considers price as the relevant factor. In Claire's case, this version of product elasticity is inapplicable as it is inconclusive. It thus creates a strong impetus for a more in-depth analysis of elasticity as a concept as applied in microeconomics.
While the demand for Claire's enlisted products would fall due to the restriction imposed on them by the government, the demand would fall even further since the goods are, first luxurious and second they have perfect substitutes from other retailers. Whether Claire decides to reduce the prices of the goods to sell fast -which will be another violation of the law -or not, the demand for the goods will fall still. In this case, the price of the products is expected to remain constant while the demand will decrease. Applying the cross elasticity of demand, in this case, is appropriate. Claire's customers will only stop buying the products since they can get them from other stores at the same price. However, if the prices from the other stores are considerably high, then they will opt to get alternatives.
Assuming that So is the quantity of the products that Claire was supplying before the FDA's restrictions, then their customers would demand the quantity Qo at the equilibrium price Po. With FDA restrictions, the customers will seek substitute products from other retailers thereby the demand of Claire's products will fall from Qo to Q1 despite the constant supply of So coupled with the reduction of the prices from Po to P1. Without any proper interventions and clarifications from Claire, the long-term effect will be worse. The demand will fall beyond Q1. It is evident that the customers are very responsive to the government policies and to changes in the substitute products that favor them -a countenance of elastic demand, more precisely, cross-price elasticity of demand (Becker, 2017). The fall in demand in demand is not directly affected by the of Claire's commodities but from a combination of factors.
Although the restrictive government rules can be primarily attributed to the drastic fall in quantity demanded in this particular case, there is no doubt that the relative ease of finding perfect substitutes for Claire's commodities is the main reason for the demand decline. For some reason, the customers would stick with Claire products if they were emotionally attached to them. Governments across the globe try to reduce the consumption of alcoholic beverages by imposing heavy taxes, but addicted drunkards still find it easy to consume too much alcohol. Claire's customers would find themselves buying the products if they had no alternatives.
Becker, G. S. (2017). Economic theory. Routledge.
Changes in equilibrium price and quantity: the four-step process. (2019). Retrieved from https://cdn.kastatic.org/ka-perseus-images/2af6205845a78b08bcf38c3ff7d3b7286e2ddfb5.jpg
Hsu, T. (2019). F.D.A. Confirms Asbestos in Claire's Products and Calls for Stronger Regulation. Retrieved from https://www.nytimes.com/2019/03/05/business/claires-cosmetics-asbestos-fda.html
Turner, L., & Knoepfler, P. (2016). Selling stem cells in the USA: assessing the direct-to-consumer industry. Cell Stem Cell, 19(2), 154-157.
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