Devaluation of the Chinese Yuan

[dannyboy]

I think it may well be time for me to cut right back on my flippant and so called witty remarks.....

Regards, Allan.....   

Don't!!! Your 'flippant' remarks usually bring a smile to my face. Having read a lot of your posts, I think I have a similar sense of humour to you  (And I am not being flippant when I say that (with a smiley)  ). David.

[Mito]

Being an eternal optimist I would like to think we may see some benefit but I doubt it. Isn't Bachmann Chinese owned? The Chinese government wants to increase salaries by 20% annually for the next few years so I think more devaluation is to come.
Connected with this is that I think now many offerings are way overpriced. Many people, myself included cannot afford to pay some of the prices asked. I know that models produced today are well detailed but with aging eyesight the fine detail is lost on me.

[Bob Tidbury]

I agree the detail on modern stock is fantastic but a lot is unnecessary for instance all the underfloor stuff in the middle of a chassis after all when it's running you cannot possibly see it ,I say get the roofs right and your halfway to a decent model .how come the Pendolino is such a good price for a full rake with two power cars and all the coaches when a single loco now is about £150 or more, if you think about it we are getting the coaches free.
Let's get the quality and reliability  sorted before all this fancy detailing its no good looking fantastic if it doesn't  run well or it fails just after the running in period and just out of warranty.
Bob

[Bealman]

I tend to agree... good running is the important factor. I have posted before about how I've broken off some of the fine detail just taking the model out of the packing for it's first excursion!

Performance is paramount. 

[Sprintex]

Getting off-topic here, detail has nothing to do with the original question about revaluation affecting prices

The "moaning about detail" thread is here


Paul

[Bealman]

Quite correct, Paul... I'm on phone and replied without looking at the name of the thread. Sorry! 

George

[Bob Tidbury]

  Paul it's my fault I consider myself suitably chastised I'll try harder not to post in the wrong thread again I promise .
Bob

[steve836]

No Zog! I for one enjoy your witticisms

[MalcolmInN]

Oh the tangled webs we do weave !

Where am I going wrong with the following :
It is only 4%, or have they done some more devaluing since I last looked ?
Not a lot to get worked up about is it ?

Worse - it is only 4% of the Chinese side costs. What proportion of the cost to us is represented by that Chinese cost ?
Not a lot going by the cost of things sourced in China (and/or Hong Kong) on ebay compared to something from , , ummm, well I was about to say USA but infact just about anywhere else in the real world.

I blame the middle men and those in the Treasury & IR & subcontractors charged with collecting of taxation without (effective) representation, anyone for a cup of tea ?
>> whoosh >>>

[DesertHound]

Interesting topic this. I'll throw in my two cents worth, but please bear in mind it's many years since I was in an Econ lecture auditorium. I'd be very interested if anybody out there could build on this, or even correct me if I'm wrong.

Ok, here we go ...

First of all (before we talk about currencies), let's consider which two fundamental forces determine price. These two forces are SUPPLY and DEMAND. In graphical terms, where the supply curve and the demand curve meet, we get what is called an EQUILIBRIUM price.

Look at the SUPPLY and DEMAND curves (they're not actually curves but straight lines) in the graph below. Forget the red curve SUPPLY 1 for a moment. You can see that where the SUPPLY and DEMAND curves cross eachother, we get an equilibrium price P) on the left hand axis, and a quantity demanded (D) on the bottom axis.

[smg id=28140 type=preview align=center caption="image"]

So, what does an effect of a currency devaluation have on the above graph (in simplistic terms)? A currency devaluation, in effect making the product cheaper to produce, shifts the SUPPLY curve to the right, to give SUPPLY 1 ( the red supply curve). Thinking about it in plain speak, if we're only interested in buying one loco, that loco has now become cheaper to buy at a price that is both agreeable to the buyer and the seller. However, it also has the effect of INCREASING DEMAND.

Price has gone down from P to P1 on the left hand axis, and demand has increased from D to D1 on the bottom axis.

So, by how much does price decrease and by how much does demand increase? A major factor determining this is DEMAND ELASTICITY. This is a propensity to buy something (demand) given a change in price. Think of it as an elastic band. A very elastic band stretches far, a very I elastic band will not stretch very much.

And so it goes, in a case where demand is very elastic, demand will change dramatically given a change in price. Where demand is very inelastic, demand will not change much given a change in price. Where N Gauge locos sit, who knows?

Examples of ELASTIC demand might be a coffee in the morning on your commute to work. If it goes up in price you might decide to only have one per week, instead of five, or perhaps have one at home before you leave. Another example might be going to the cinema. If it goes up in price you might decide to just stay home instead and watch Auntie (the BBC for you antipodes) instead.

Examples of INELASTIC demand would be things such as food and utilities. We need these to live, and will cut back on pretty much everything else before we cut back on these. This would tie in with Portpatrick's observation above of how we rarely perceive domestic utility and petrol costs to go down (well petrol has indeed fallen), since our demand elasticity for these goods is very INELASTIC. Hence markets such as these require government regulation and intervention.

So, why are we going on and on about demand elasticity? Well, we wanted to explore by how much prices might change. Look now at the graph below, with two green demand curves. The solid green demand curve represents and elastic product and is flat. The dotted demand curve represents an inelastic product and is steep.

[smg id=28141 type=preview align=center caption="image"]

If we considered demand for n gauge locos to be elastic (solid green, flat demand curve), we would see that the currency devaluation would have a large effect on demand, with quantity demanded moving from D all the way across to D (ELASTIC) on the bottom axis. Price would not drop by much, from P to P (ELASTIC) on the left axis. This makes sense when you think about it - a small change in price causes a large change in demand, since we are price sensitive.

If we considered demand for n gauge locos to be inelastic (dotted green, steep demand curve), we would see that the currency devaluation would have a small effect on demand, with quantity demanded moving from D only to D (INELASTIC) on the bottom axis. Price would drop by a larger amount, from P to P (INELASTIC) on the left axis. This also makes sense when you think about it - a large change is price causes not much of a change in demand, since we are price insensitive.

The astute might have noticed that the above two paragraphs are worded almost the same, except they are the opposite of each other.

So, in conclusion, by how much devaluation changes the demand of a product, depends very much upon our elasticity (sensitivity to price) of that product.

Additionally, the above is applicable for competitive markets, where producers can enter and exit the market at will. Obviously this is not the case with Graham Farish, since there is only ONE Graham Farish. It wouldn't hold for a single manufacturer, such as Graham Farish, since they have the ability to restrict supply, and hence stop the shift in the supply curve to the right, from SUPPLY to SUPPLY 1 (red curve). In a competitive market, with many manufacturers, however, the theory should work.

The point above about a manufacturer being able to restrict supply (stopping the shift of the supply curve to the right) goes some way to explaining why companies invest in branding. By branding their products, whether it be Graham Farish, BMW, PG Tips, or whatever, they are trying to convince consumers that THEY are the market, that their are no substitutes for their product, and hence they can manipulate the laws of supply and demand discussed above.

Would be interested to be corrected on any of the above. There are other factors involved and I don't believe we'll see a significant price drop from Graham Farish and the like. We'd have to consider the whole mix - taxation, wage pressures, companies' perceptions of the durability of the devaluation etc. etc. However, if we wanted to consider the effects of a devaluation in isolation, then I believe the above should hold.

Best

Dan

[Caz]

My brain hurts.     

[MikeDunn]

Can someone translate that into English, please, and preferably using 1-syllable words 

[Roy L S]

Can someone translate that into English, please, and preferably using 1-syllable words 

I well remember my Economics Lecturer from years ago succinctly describing the subject as "common sense made difficult" and that has stuck with me ever since!

Roy

[JasonBz]

In as few words as possible

Luxuries like Model Railways (if that is what they are) wont drop in price much.

[Sprintex]

Can someone translate that into English, please, and preferably using 1-syllable words 

Easy, the answer to the original question is "NO"


Paul