• You will hear a radio interview between a woman and a man about sales in re

W: Hello, Mr. Hall. It’s nice to have you here with our listeners and talk about sales in recession today.
M: It is my honor, Miss Scott.
W: So, what do you think of sales figures?
M: Well, sales figures are very important indicators often used as evidence of the general health of the economy. In a recession, any rise in high street sales is usually quoted by government ministers as evidence of the increase in consumer confidence that is the first step on the road back to economic growth.
W: Really?
M: Yes. In free market terms, sales figures reflect the state of local market forces at any one place and at any one time. They show the amount of a product that the public wants to buy at the current price.
W: I see.
M: To a large extent, this is true. At times of falling sales, high street shops are forced to reduce prices-with out-of-season sales, special offers and even “closing down” sales. Newspapers are full of advertisements for special offers on consumer durables, cars, for example, or computers and video recorders.
W: Then what is the reason of price reduction for these goods?
M: The reason why these goods become the ones that are most frequently discounted in times of recession is that they are the most expensive in terms of their opportunity cost. Opportunity cost is their relative value to buyers compared to the value of alternative goods and services on which they may want to spend that same amount of money. If you have the money, you can buy a CD player or go on a short holiday, but you cannot do both.
W: Interesting.
M: Even more important, perhaps, is the consumer’s fear of his or her personal future. In recessions come job losses, with job losses comes an increased reluctance to spend. It is expensive luxuries such as videos that are the first items to be cut from household budgets. People feel the need to save against the possible future loss of income. In recessions, a greater proportion of the public’s income is saved than in times of economic growth.
W: That is true. Then this must exert some effect on manufacturers?.
M: Certainly. The effect of all this on manufacturers can easily be seen. Falling sales lead to production cut-backs. This results in the under-capacity of plant and machinery. Since fixed overheads remain basically the same, other ways of cutting back on costs and thus of reducing prices have to be found. Almost always, this is achieved through cutting back on jobs.
W: So, many people will lose their jobs.
M: Yes, but therein lies the problem. Although, for a manufacturer, cutting back on the workforce is a relatively simple short-term solution it is not necessarily the best long-term strategy. In certain key industries, skilled labor is hard to find and keep. The job market can fluctuate as erratically as the consumer market.
W: What do manufacturers usually choose to do accordingly?
M: Manufacturers, therefore, tend to wait longer before they lay off any staff than they would do if they were obeying market forces. In order to keep these workers fully occupied, companies may have to depress prices artificially to a point lower than that demanded by prevailing market forces, merely in order to maintain production levels. It is almost certainly true, therefore, that there are forces at work at the time when an economy is entering a recession that distort the real value of sales figures. It may also be true that, on the way out of a recession, or in a boom period, the competition for scare labor has the same distorting effect.
W: Thank you very much, Mr. Hall.