Online Shopping Essay

Introduction

Online shopping is a form of commerce of all kinds of goods that involves electronic devices and the internet. E-commerce allows consumers to directly buy goods or services from a seller over the internet using a web browser. Online shopping is usually more convenient in many cases for shoppers to use "search" features to find specific models, brands, or items, although it might have various risks as well. Some of the advantages of shopping online could be listed as convenience, better prices, a wide range of goods, and it is easy to send gifts. On the other hand, the possible disadvantages of shopping online are the negative environmental impact of packaging and gas, shipping problems and delays, risk of fraud, and less contact with your community.

Aside from the individual advantages and disadvantages of online shopping, it has growing macroeconomic effects as well, all around the world. Being one of the most powerful economies in the world, the U.S. has a great share of the market in online marketing, affecting the path, growth, and popularity of e-commerce and being affected in return in an exponential manner on a macroeconomic level. Online shopping does not only change the way the customers buy, but it also changes the way the shops sell.

Since e-commerce changes the style of marketing, it has considerable macro and micro effects on the economy as well. That's why, in this paper, the macroeconomics effect of online shopping will be analyzed using a large-scale macroeconomic model to keep it brief and simple. A large-scale macro-econometric model can be defined as a set of stochastic equations with definitional and institutional relationships denoting the behavior of economic agents. Keynesian model of economics and theory of applied economics will be used in the analysis in accordance with the large-scale macroeconomic model.

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Macroeconomics Theory

First of all, in order to get an accurate and clear picture of the macroeconomic effects of online shopping on the economy of the U.S., we have to get a deeper understanding of the large-scale macroeconomic model. Davidson (2014) explains the macroeconomic model as an analytical tool that is designed to identify and solve problems by describing them with related variables in the economy of a country or a region. The variables that are frequently used are listed as comparative statics and dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the level of prices (2014).

Macroeconomic models may be logical, mathematical, or computational where all these three modeling types are used to analyze different aspects of economics in different cases. Also, these models have advantages and disadvantages over one another in case of different purposes. Macroeconomic models may be used to clarify and illustrate basic theoretical principles. This means that they may be used to test, compare, and quantify different macroeconomic theories. For example, the aim could be predicting the effects of changes in monetary, fiscal, or other macroeconomic policies, or these models could be used to generate economic forecasts in various economic states. "Thus, macroeconomic models are widely used in academia in teaching and research and are also widely used by international organizations, national governments, and larger corporations, as well as by economic consultants and think tanks" (Davidson, 2014).

Moreover, according to Davidson, following the development of Keynesian economics, applied economics began developing forecasting models based on economic data, including national income and product accounting data (2014). In contrast with typical textbook models of intermediate level, these large-scale macroeconomic models used large amounts of data and based forecasts on past correlations instead of theoretical relations and that is why it is the most suitable tool to analyze and predict the effect of online marketing on the economy of the U.S.

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E-Commerce (Online Marketing)

One of the best definitions of online marketing could be given as follows; "The opportunities e-commerce offers to consumers and businesses are ubiquitous. Investment in information and communication technology (ICT) allows businesses to reduce costs and find new customers. Consumers have access to more information and choices. The effects e-commerce has on national economies are equally pervasive. In the aggregate, e-commerce improves productivity, increasing GDP, and economic growth. While e-commerce enhances economic welfare because it lowers costs and expands markets, it also creates notable issues for government policymakers" (Heil & Prieger, 2016). However, by the change of the commercial media, the economy and the banks that run with the traditional models face new challenges since these traditional models do not include such new concepts as e-payment and e-money mechanisms. Traditional sources of tax revenue are threatened through online purchases at first sight.

In order to find out the effect of online shopping on the U.S. economy and if it helped or not, the four aspects of macro economy will be analyzed. These four concepts are economic growth, monetary policy, fiscal policy, and international trade.

Figure 1. Number of digital shoppers in the U.S. from 2016 to 2021 (in millions) (Source- https://statista.com/statistics/183755/number-of-us-internet-shoppers-since-2009/)

Economic Growth

A comprehensive analysis of the growth of e-commerce since 2014 and a prediction of its probable volume until 2023 are listed on statista.com by J. Clement, a research expert on the internet and e-commerce. "In 2019, retail e-commerce sales worldwide amounted to 3.53 trillion U.S. dollars, and e-retail revenues are projected to grow to 6.54 trillion U.S. dollars in 2022. Online shopping is one of the most popular online activities worldwide" (Clement, 2020). Between 2014 and 2020, the relative growth of online shopping worldwide is 27% per year, and that adds up to around 350% of total growth between the aforementioned years. Therefore, by a mathematical model based on the real numbers of the volume of online shopping, it could be concluded that e-commerce is in a fashion of exponential growth in terms of trading volume and net economic volume.

Monetary Policy

As the number of online shoppers and corresponding transaction amount of total trade goes higher, the monetary policy is supposed to adapt to the new trend of marketing and payment in order to keep online shopping under control and apply tax to e-commerce. The U.S. economy is quite successful as of 2020 in terms of controlling national and international e-commerce and applying tax for online shopping transactions and, as a result, getting benefits from online shopping. There is no "national" sales tax law in the U.S.

Therefore, an average number cannot be listed officially. However, checking the New York state tax policy over online shopping would give a good idea of average tax income at the national level. The New York State tax rate, dutchess county rate, and dutchess county district tax rate in 2018 are listed as 4%,3.75%, and 0.38% respectively on bigcommerce.com by the tax experts; and those numbers add up to 8.13% (2018). In addition to tax income from it, the concept of online shopping has other advantages for the economy of the U.S. and these advantages are listed by Dalebrant & Wood as "in addition to cost-saving, a cashless society can also benefit in terms of improved efficiency, improved tax revenues, creation of innovative payment business which is positive for exports and employment, and reduction of criminal activities" (2016).

Fiscal Policy and International Trade

By definition, fiscal policy is the means that governments use to adjust and control trade limits, spending levels, and tax rates. Fiscal policy also reflects the influence of economic advancements on a nation's economy. Fiscal policy and monetary policy are interrelated, and one affects the other in the same direction. Since the central bank of a nation influences the nation's money supply through monetary policy, the amount of money to move in the market and volume of transactions, which make up the fiscal policy itself, are also affected. These two policies are used in various combinations to direct a country's economic goals. Here's a look at how fiscal policy works, how it must be monitored, and how its implementation may affect different people in an economy (Delone & Mclean, 2004). Therefore, any taxable commercial activity would end up in a positive outcome in terms of fiscal policy.

Online markets have features that are quite different from traditional shops. For example, the physical cost of changing prices is negligible for internet retailers. Thus, this makes it much easier for online shops to change the price of goods in accordance with demand and supply conditions. The downside of this phenomenon is that internet prices could be fluctuating every week, day, or minute. However, the fluctuation is mostly concerning for the buyers and not the government, since the overall tax income from online shopping is not considerably affected by minor price changes in the online market.

One advantage of online shopping in terms of international trade is that buyers can search for the best online prices for very narrowly defined goods is particularly cheap and simple as they do not need to travel anywhere. Buyers that prefer online shopping have access to a wide range of goods and distribution of prices with just a few clicks, and this causes pressure for price convergence, that is, online shops control each other's pricing and form in a self-controlled free-market pricing trend. Omnipresent price comparison websites, especially, contribute to this phenomenon.

As a result, since the geographical location of consumers and stores is largely irrelevant in e-commerce, and therefore administrative borders and similar frictions are likely to play a much more limited role, the speed of trade and interrelation of stores in terms of pricing provides a profitable trading media for the U.S. economy. Well-detailed research on the effect of online shopping in the E.U. was conducted, and the results were listed along with the related tables by Cardona, Duch-Brown, Francois, Martens, & Yang in 2019. In the report that was prepared in response to the demand of the E.U. commission, the economists state that as long as the control over online shopping is established by governments that keep up with the technological developments, online shopping is quite profitable due to the decreased cost of hardware and increased speed of trade, and the volume of transactions in accordance (Cardona, Duch-Brown, Francois, Martens, & Yang, 2019).

Analysis & Conclusion

In conclusion, it is possible to state that despite the minor disadvantages like causing customer loss to traditional markets and customer shift; as a result, online shopping is a very advantageous type of commerce for the developed economies such as the U.S., and it helps to decrease expenses for commercial activities by reducing Costs for cash include printing, transportation, deposits, withdrawals, personnel costs related to counting cash sales at the end of each day, and back-office administration. Whatsmore is that since e-commerce websites connect buyers and sellers from all across the world and keep the economy alive 7/24 even in the most unstable situations. It allows sellers to place their products on a market where they can easily reach their target customers from all across the world, and this feature increases export rate as well. As the number of online shopping and price comparison websites increases, sellers have inclined towards price standardization at much more affordable prices than physical stores. Therefore, customers can remain assured that they will get a quality service for a fair deal. One other reason for the high ratio of service/price is that no intermediary is involved in the chain of selling products online, sellers can provide the product at its least price, and the buyers can get benefit from the feedback system, which consists of grading and commenting on the product and the service, of the e-commerce websites. E-commerce businesses continue to draw profit even during an economically unstable time due to the lack of physical presence. This advantage of online shopping is caused by saving much money by offering products at affordable prices, and the ability is provided to the sellers to sell products worldwide.

Apart from all these benefits, e-commerce boosts the overall economy by increasing competition, lowering prices, and increasing service level and productivity, thereby creating downward pressure on inflation. Therefore, as long as the U.S. government controls the online transactions and applies taxes according to the type of goods that are sold online, e-commerce will continue to help the U.S. as it has been doing for a long while. The macroeconomic models used to analyze the effects of online shopping on the U.S. economy estimated the relations between different macroeconomic variables using regression analysis on time series data. As a result, it is seen that online shopping is contributing to the U.S. economy in an exponential trend.

References

Cardona, M., Duch-Brown , N., Francois, J., Martens, B., & Yang, F. (2019, July 26). The Macro-economic Impact of e-Commerce in the E.U. Digital Single Market. E.U. Science Hub - European Commission.

Clement, J. (2020, August 27). Global retail e-commerce market size 2014-2023.

Dalebrant, T., & Wood, S. (2016). The Monetary Policy Effects of Sweden's Transition Towards a Cashless Society: An Econometric Analysis.

Davidson, P. (2014). Post Keynesian macroeconomic theory a foundation for successful economic policies for the twenty-first century. Edward Elgar Publishing.

Delone, W. H., & Mclean, E. R. (2004). Measuring e-commerce success: Applying the DeLone & McLean information systems success model. International Journal of electronic commerce.

Heil, D., & Prieger, J. E. (2016). Macroeconomics Aspects of E-Commerce. Encyclopedia of E-Commerce Development, Implementation, and Management, 2300–2314. https://doi.org/10.4018/978-1-4666-9787-4.ch165

Willis, J. L. (2004, Spring). What impact will e-commerce have on the U.S. economy? Economic Review [Kansas City], 89(2), 53+.