Car Costs and New Technologies - Essay Example

 Car Costs and New Technologies Question 1 People believe that private enterprises lead to a greater freedom and a more efficient operating economy. In this type of economy, the supply and demand of the goods and services establishes the price. At the same time, it enlightens the economy about a particular demand and the level of production. When there is a greater demand of the good, the prices rises and along with the profitability. Therefore, more companies enter the market and supply similar goods and services creating a more competitive market. But when the demand is low, more companies stop producing that good and service and move to different goods leading to an efficient market economy. In this type of economy, there are no restrictions and no price controls. Therefore, it does not look at the welfare of the people and the nation as a whole. On the other hand is the socialist economy. Most of the economists believe that government intervention and holdings are less efficient as they do not answer to the price changes or the change in the demand of the consumers. This is because the government relies on the tax collection for its revenues and less worried about the demand situation (US Department of State, 2010). But still most of the countries adopt some form of the mixed economy in allocating resources because they believe that both the private and the public sector play an important role. A mixed economy is a blend of free market and socialism. It is an economy that has a lot of freedoms but at the same regulations from the government keep a constant check. The economists of these nations believe that some of the industries are better under the control of the government while others are better off under the supervision of the private entrepreneurs. For example: The development of the infrastructure; road, rail, air and port, administration of justice, defense of the nation and education is under the control of the government. At the same time, there are certain institutions where the government intervenes in the market to settle out the price levels such as utilities, agriculture and water. In this way, it regulates these likely monopolies (US Department of State, 2010). For example: Water and Power Development Authority keeps a check on the charge of electricity in Pakistan keeping the nest interests of the economy at heart. At the same time, the government regulates the private sector by creating standards and policies to guard the consumer interests and increase the welfare of the people. For example: Securities and Exchange Commission protects the interests of the people on the trading and stock exchanges in US. It is a regulatory body that has proper standards to keep away the deceits and the cheats away from the market. The government also monitors the environmental hazards by keeping a check on all sectors pollution levels. On the other hand, presence of the private enterprises is very important. They bring in the much needed capital and investments and develop an efficient economy. The private sector caters to the needs of the people with a speedy service. At the same time, it leads to rigorous competition and the reduction of prices. Basically, the private sector allows the economy to generate more employment and alleviate poverty. It increases the quality of life, the variety of goods and services, increased access to basic commodities and neutralizes the effects of monopoly and market manipulation (US Department of State, 2010). Therefore, most economies have adopted the mixed economy in allocation of their resources because they understand the critical role of both the private entrepreneurs and the government. The private entrepreneurs bring in the investments and provide a route to a more developed efficient that quickly responds to the needs of the consumers. At the same time, the government keeps a check on all the markets keeping in mind the best interests of the people. They try to control natural monopolies and develop standards and policies to regulate the markets. . Question 2 2.1 Palladium is an expensive metal that was being used in the manufacturing of the car catalysts. With the declining sources, the metal had really gone up over the time. At the same time, the demand of the cars was going up and so was the price of the palladium used in the manufacturing process. But the price of the palladium fell drastically on the news of the technological breakthrough in the production of catalysts in the cars. This is because the new catalysts used 90% less platinum and palladium in the manufacturing of these catalysts. Therefore, the demand of the palladium suddenly declined on a large scale while the supply remained constant. The demand curve shifted downwards. The graph clearly shows the movement of the demand curve downwards from D1 to D2. The movement shows that new intersecting point of the demand and supply has a lower price as well as the quantity demanded. The price has fallen from P1 to P2 and at the same time, the quantity demanded has fallen from Q1 to Q2. In this whole scenario, we have assumed a constant supply of palladium. Figure 1: Decrease in Demand of Palladium 2.2 The technological breakthroughs such as the cheap manufacturing of the catalysts will greatly decrease the price of the cars. These breakthroughs will help Mazda and Nissan to produce low cost cars so that they could compete with other low cost producers. The decrease in the cost of the production due to the technological breakthroughs will increase the supply of the cars produced to the market. This will cause the supply curve to shift outwards, thereby decreasing the price of the commodity from P1 to P2 as shown in the figure 2 and helping it to compete against TATA manufactures on a large scale. In the figure, you can see also that as the curve S1 shifts outwards to S2, new intersecting point of the demand and supply has a greater quantity supplied.. Figure 2: Technological Breakthroughs increase the Supply The car industry wants to its material costs so that they are able to produce more cheap cars for the emerging economies. There is a growing demand of the cheap cars with the same quality of engine and drive in these markets. With these technological breakthroughs, the firms are able to use more efficient alternative materials and are able to reduce the cost of the manufactured cars. Thereby, they increase the supply in the market and fulfilling the needs of the emerging markets at competitive prices. Question 3 The car industry around the globe is colossal and competitive. Over the years, the automobile industry has gone evolved with the innovations and diffusions of technology. With the advent of the engines, to assembly lines, to cheap catalysts, to fuel cell technology to societal infrastructure and to gadgets inside the car, the car industry has become more progressive and competitive than ever. If the new technology had not been adopted over the years, the car industry would have lost the competitiveness and edge in the pricing of the cars. For instance: If the new catalysts had not been adopted, the cars would still be using the palladium and platinum for the manufacturing of the catalysts. With the declining supply of the palladium, it would more and more expensive and thereby increasing the manufacturing costs of the cars. The car industry in UK would have lost the much needed competitiveness against the cheap Tata manufactures and new hybrid technology. Therefore, I must say that the adoption of the new technology with time is extremely important. It allows the car industry to remain quality leaders, consumer brands and competitive. Bibliography US Department of State. A Mixed Economy: The role of the market. Accessed on Apr 10th 2010 from http://economics.about.com/od/howtheuseconomyworks/a/mixed_economy.htm Read More