What Effect Does Christmas Have on the Economy?
As Christmas is fast approaching, you are most likely thinking about buying presents and what to do during this magical time. However, did you ever think about Christmas in terms of economics? Well, let’s discuss why seasonal shopping is important and what happens to our economy. Hope this will give you an insight…
Seasonal shopping
There is an economic boost as many retailers require more staff than needed during the period that leads up to Christmas. As there are more online shopping, especially this year, this leads to an increase in profit and temporary workers can get extra cash. Also, the spending increases during the Christmas period in almost every industry. As a result of this, there is a huge increase in the production of manufacturing during months that lead up to Christmas. As a matter of fact, the toy industry’s product development and timing are based around the Christmas period in order to maximize profit.
Four key areas in-season sales
There are more customers, which suggests that businesses are able to build a relationship and create customer loyalty. As well as this, it helps to raise awareness of brands and small businesses.
Businesses can get feedback from shoppers and employees, which will provide an insight into where the businesses should improve.
More sales. During these busy times, there are more customers which means more purchases of different goods and services.
With more customers and feedback, businesses have an opportunity to improve and practice new ideas.
Is Christmas all that great?
So Christmas is very important for businesses, being the peak selling season for almost every industry and accounting for a large part of the annual profits. Needless to say, it is very VERY lucrative to businesses- but what about everyone else?
First, let's flip the coin and ask about consumers. If you’ve ever had any experience shopping during the time leading up to Christmas and New Year, you should know that the prices during that time can rise exponentially. So already, that isn’t very good for consumers. That in itself, however, wouldn’t have been such a problem if it wasn’t for the huge deadweight loss. Deadweight loss is the loss of economic efficiency due to an inefficient allocation of resources. During Christmas, it happens largely because of gift-giving. This is because when people buy presents, they themselves aren’t the recipient, which means they don’t know what would be of most value to the person who is. This means that the money the gift-giver spends likely won’t provide as much utility to the recipient as they would have had if they bought their own present for the same amount of money. Obviously, this isn’t economically desirable as resources are spent in a way that does not maximize utility. In fact, because the deadweight loss is so big, Christmas, in some sense can be regarded as a market failure, due to misallocation of resources being its direct consequence.
Some people might argue that this deadweight loss can be overlooked when you think about the macroeconomic benefits of the increased spending during Christmas. This line of logic stems from the fact that increased spending means a rise in aggregate demand, which causes an increase in the GDP, boosting the economy. However, while this is somewhat true- yes, more spending does stimulate the economy- it isn’t completely accurate. In reality, even if we didn’t have a Christmas season, the money used during Christmas would likely still be spent, only more evenly throughout the year, which means that the annual economic growth wouldn’t be affected much. In fact, this may even be better for the economy as the economic growth would be more stable and steady. And even if that money isn’t spent but is saved in a bank, you have to remember that it doesn’t just sit there. Instead, it is used by banks to lend to new businesses or other consumers, which also expands the economy. In conclusion, although the economy is stimulated during Christmas, it would likely be just as well off without it, if not better.
Following the same line of logic, for many of the industries (excluding those solely dependent on it, e.g Christmas cards), removing the holiday season wouldn’t have had much effect, as their annual consumption would likely remain the same but would be spread more evenly throughout the year.
Written by Aidana Assylbek and Togzhan Batyrbekova; edited by Alexey Dudarev.
