Chapter 2 - Demand & Supply

http://news.bbc.co.uk/2/hi/business/8305036.stm

Summary:

This article is about the Royal Bank of Scotland (RBS) and how they want to attract small business customers because they need to meet their loan targets. Royal Bank of Scotland and Lloyds committed to lend to firms and homeowners of this year. But despite this generosity the government feels that “the banks were demanding ‘unrealistic’ interest rates on their business loans”. The real problem was not the fact that there was a lack of demand in their loans but the fact that maybe the pricing was a bit too high to afford. So RBS and Lloyds have been told that “they must meet their obligations” and this was a condition of the banks’ taxpayer bail-out.

Connections:

Connections between the article and text were: change in demand, change in quantity demanded, change in supply, and elasticity. There was change in demand because their pricing was too high and "unrealistic" for potential borrowers. The quantity demanded decreased because customers actually paid back more this time than before. And there was a change in supply because RBS has actual lending targets to meet as of now. So this meant that RBS may have more to lend this year but not enough potential borrowers to use their services. All this leading to the situation being elastic because there was lending targets to be met that result in the pricing of loans going up, but it also meant that the potential borrowers have moved on to other lenders who they could afford.

Reflection:

I think that this is fair because if the banks were making “unrealistic” goals in the first place so these are the consequences that are paid to them. It’s only natural that people would research on the lowest possible interest on loans so they could have their money worth. RBS and Lloyds shouldn’t be surprised if this was happening because after all, they did increase their rates to meet their target loans. This is just a way that the potential borrowers are responding to it. If the demand is low then they should do something about it instead of trying to rip people off for the loss they've gained.