Question

why did a national slump that began with housing affect companies like eagle alloy that didnt sell much to the construction industry?

Answer 1

The economic crisis of 2008 was one of the biggest downturn the US economy faced after the great depression. The experts have pointed out many reasons for the crisis among which the most important was the subprime mortgage crisis that leads to the bankruptcy of many financial institution that forced the economy into deep recession.

In the economy each dollar spent of goods and services generates equal amount of income for seller of that goods and services. Therefore, spending on total goods and services is equal to the income of the producer of that goods and services. Hence, the spending in product market flows as revenue to the firm. This revenue flows as factor payment or wages and salaries to the household.

Hence, as each dollar spent generates equal amount of income, total spending must be equal to the total income in the economy. In recession the economy is experiencing economic downturn. Average economic activities are falling and income contracting. This makes the demand for goods and services are falling due to fall in income.

The Eagle Alloy is large manufacturer of inputs that is used to produce wide range of consumer goods. As the economy is hit by recession, the demand for these goods falls. The industries that use Eagle Alloys product as income decreases its production due to lack of demand. This will decrease the demand for Eagle alloy and Eagle Alloy's demand fell and sales decreases by 50%.

Hence, even if the Eagle Alloys does not supply in housing market it still hit by the recession.