Economics of the Automobile Industry

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A vehicle is one of the biggest purchases a person will ever make. Over the years, the prices of an automobile have increased due to the rise of inflation. Due to a price index, the price of an automobile changes over a certain period of time. Economists compare averages of automobiles to calculate the cost of each vehicle that presents itself on a car lot. When all of the above is calculated within the purchase of an automobile, it affects every area of making the automobile to selling the automobile. All of these factors are impacted together for the automobile industry as a whole. In the automobile industry, there are factors that cause a shift in the supply and price elasticity of the supply and demand. These factors can cause the supply demand to reduce or raise the demand for the automobiles. One factor to consider is if the price of steel rises. Automobile manufacturers will then produce fewer automobiles at all different price levels and the supply curve will then shift. Another factor to consider is if automobile workers decide to go on strike for higher wages. The company will be forced to pay more for labor to build the same number of automobiles. The supply of these automobiles will decrease. Lastly, another factor that can curve a shift in the supply curve could be if the government imposes a new tax on car manufacturers. In all of those cases, the supply curve will move because the quantity supplied is lower at all price levels. As the supply curve moves in the automobile industry, the equilibrium price and quantity sold will change with this shift. When the automobile manufacturers see this shift in supply, they will then raise their prices and the quantity sold will fall. Car manufacturers will also develop... ... middle of paper ... ...asticity of Demand. Retrieved December 3, 2011, from http://www.mackinac.org/article.aspx?ID=1247 Mason, P. (1998, June). Race, cognitive ability, and wage. Retrieved January 14, 2012, from http://findarticles.com/p/articles/mi_m1093/is_n3_v41/ai_20809842 O'Sullivan, A., & Sheffrin, S. (2005). Economics. Upper Saddle River, New Jersey: Pearson Prentice Hall. Spatz, J., & Nennenkamp, P. (2002, January). Globalization of the automotive industry-traditional locations under pressure. Retrieved January 14, 2012, from http://www.uni-kiel.de/ifw/pub/kap/2002/kap1093.pdf The Social Studies Help Center (n.d.). Monetary and Fiscal Policy. Retrieved November 5, 2011, from http://www.socialstudieshelp.com/eco_mon_and_fiscal.htm Whitehead, J. (2006, May 8). Price elasticity of demand. Retrieved December 3, 2011, from http://www.env-econ.net/2006/inelastic_short.html

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