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Homework answers / question archive / Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer non-durables?

Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer non-durables?

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Why does the business cycle affect output and employment in capital goods industries and consumer durable goods industries more severely than in industries producing consumer non-durables?

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Goods that are typically classified under consumer non-durable include food, medication, personal care products, textile, clothing among others. The key point to note is that a large number of goods under the non-durable category are goods that are "Necessity." Goods that come under the category of necessity have a lower impact in times of economic downturn. Just as an example, families won't stop consuming food or using personal care products in recession. Therefore, the demand for non-durable goods is not significantly impacted by business cycles.

 

On the other hand, durable good example includes automobiles, home appliances, furniture among others. It is important to note that durable goods last longer and do not fall under the category of "Necessity." Some durable goods can fall into the category of "Luxury." Therefore, when there is a recession, consumers tend to reduce the purchase of durable goods. When there is an economic boom, the purchase of durable goods also increases. In other words, the fluctuation or volatility in consumption of durable goods is high through various phases of the economic cycle.

 

Therefore, the key difference is in the nature of goods and non-durable categories being a "Necessity" as compared to the durable category of goods. When output (for durable goods) is impacted during the recession, unemployment also increases in the durable goods sector more than the non-durable goods sector.

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