Hire writer
Paper Types
Disciplines

Supply and Demand, Essay Example

Pages: 1

Words: 782

Essay

The everyday occurrence of buying a new car has profound lessons for the discipline of economics.  On the demand side, there are numerous factors that affect purchasing a new car.  For example, demand for cars might be influenced by changes in prices of substitutes: If the price for public transportation (whether for train, bus, or subway) or motorcycles decreases dramatically might lead to less demand for cars (Mankiw, 2001). That is because consumers can pay less money and still receive similar benefits.  Another key demand side factor is interest rates charged on car loans or the availability of credit.  Since a majority of cars are bought on credit, a reduction in interest rates would lower the cost of financing (and ultimately the car) making cars more attractive to consumers. By the same token, if the standards for credit availability were lowered, this might also lead to greater demand for cars.  A contraction in credit or higher interest rates would likely lead to a contraction in demand as the price of the car increases. Third, changes in advertising or fashion can affect demand via an individual’s preferences vis-à-vis car purchase.  For example, many car makers are making more energy efficient cars that have less of an impact on the environment.  Consumers that normally wouldn’t buy cars, or may consider other substitutes, may purchase cars deemed “environmentally friendly.” Or perhaps advertising that stresses cars made in the United States has a palpable impact on consumers and increases individual demand by moving the demand curve.  Lastly, consumer sentiment plays a key role in shaping demand for automobiles: During the depths of the global recession, demand for cars plummeted as consumer sentiment over the future, including the ability to make car payments, deteriorated. As the economy and consumer sentiment gradually improved, so did the market for automobiles.

There are three main factors related to the supply of cars (Baumol& Blinder, 2004).  The first factor is the price of inputs used in building cars.   Cars are composed of many parts that vary in price over time. If the prices of inputs increase, the manufacturer has to decide whether to raise the price of the car which may lead to decreased supply.  On the other hand, if there is a significant decrease in the price of inputs, the car manufacturer might be willing to supply more cars.  The second main factor in deciding supply is the market structure of the car industry.  Traditionally, the car industry is extremely competitive, particularly after car manufacturers from India and China have now started to export cars.  With an increase in the number of manufacturers, and arguably competitiveness in the car industry, manufacturers may choose to reduce supply in order to avoid the situation of unsold cars. On the other hand, if  there is an overall decrease in the number of manufacturers, other manufacturers may choose to increase supply to make up for lost production in the market.  The last main factor is the producer’s expectation in the production of cars.  For example, a producer may look at factors such as consumer demand and price in order to decide how many cars to supply in the market.  Future expectations are very important as car manufacturers typically make production decisions 1-2 years in the future based on existing trends.

Demand and supply for cars may also have an impact on complementary goods such as GPS tracking systems.  GPS systems are a complementary good because car manufacturers or consumers who purchase cars also purchase GPS systems.  Another complementary good for cars is gasoline.  Gasoline must be purchased in order for a car to properly operate.  Higher prices for cars may have an adverse impact on the quantity of gas purchased, especially during times of an economic downturn or high gas prices.  An increase in the price of gas may also influence the quantity and type of car purchased.  Due to the wide range of cars available, price elasticity plays a significant role in the type of car purchased.  For example, due to the segmented nature of the car market, lower-priced cars likely have a higher price elasticity of demand.  For example, if Ford raises prices too high on a lower-end model, consumers will likely simply purchase another type of car.  At the upper end of the car market, however, price elasticity of demand is likely quite low.  That is, if Mercedes raised the price of a car $5,000, it is not clear that a consumer would necessarily purchase a BMW instead.  This is because consumers at higher price levels are less sensitive to changes in price.

References

Mankiw, G.  (2001). Principles of Economics.  New York: Southwestern Press.

Baumol, W. & Blinder, A. (2004).  Microeconomics Policy.  New York: Southwestern Press.

Time is precious

Time is precious

don’t waste it!

Get instant essay
writing help!
Get instant essay writing help!
Plagiarism-free guarantee

Plagiarism-free
guarantee

Privacy guarantee

Privacy
guarantee

Secure checkout

Secure
checkout

Money back guarantee

Money back
guarantee

Related Essay Samples & Examples

Offshore Outsourcing, Essay Example

Introduction In the past decade the rate at which America has been offshore outsourcing for manufacturing and high technology jobs has been on the rise. [...]

Pages: 1

Words: 1351

Essay

Message of Dance Around the World, Essay Example

Introduction There is a considerable wealth of scholarly work on dancing and how it serves as a communication forum in many respects. This notwithstanding there [...]

Pages: 1

Words: 1396

Essay

Shakespeare’s Sonnet 130, Essay Example

A Comparison and Contrast of Corinthians 13 and Sonnet 130 Introduction These two texts are love themed and very precise in their description of the [...]

Pages: 1

Words: 1552

Essay

Testicle Festival, Essay Example

There are a lot of festivals, and fundraisers, and parties, and boozers, and keggers and even fiestas, but none compare to the Calf Fries Festival.  [...]

Pages: 1

Words: 673

Essay

The Impact of the Great Depression, Essay Example

The Great Depression of the late 1920s and 1930s has had numerous impacts on the America we live in today and will continue to have [...]

Pages: 1

Words: 263

Essay

Blueberry Field, Essay Example

Children and Blueberries Adkin Blue Ribbon Packing Company, a leading supplier of blueberries to large retail chains like Walmart and Kroger, was cited recently for [...]

Pages: 1

Words: 331

Essay

Offshore Outsourcing, Essay Example

Introduction In the past decade the rate at which America has been offshore outsourcing for manufacturing and high technology jobs has been on the rise. [...]

Pages: 1

Words: 1351

Essay

Message of Dance Around the World, Essay Example

Introduction There is a considerable wealth of scholarly work on dancing and how it serves as a communication forum in many respects. This notwithstanding there [...]

Pages: 1

Words: 1396

Essay

Shakespeare’s Sonnet 130, Essay Example

A Comparison and Contrast of Corinthians 13 and Sonnet 130 Introduction These two texts are love themed and very precise in their description of the [...]

Pages: 1

Words: 1552

Essay

Testicle Festival, Essay Example

There are a lot of festivals, and fundraisers, and parties, and boozers, and keggers and even fiestas, but none compare to the Calf Fries Festival.  [...]

Pages: 1

Words: 673

Essay

The Impact of the Great Depression, Essay Example

The Great Depression of the late 1920s and 1930s has had numerous impacts on the America we live in today and will continue to have [...]

Pages: 1

Words: 263

Essay

Blueberry Field, Essay Example

Children and Blueberries Adkin Blue Ribbon Packing Company, a leading supplier of blueberries to large retail chains like Walmart and Kroger, was cited recently for [...]

Pages: 1

Words: 331

Essay