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However with the reduction of trade barriers in the American market during the 1980’s, the luxury automobile market saw increased competition from European and Japanese automobile makers. In terms of a supply and demand analysis, it is likely that there would be increased variety in the market of luxury automobiles and an overall increase in the supply of vehicles. It stands to reason that there must be a reduction the in price of American luxury automobiles to help increase quantity demanded to meet the new market equilibrium or improvements must be made to reduce the costs of manufacturing vehicles so that company profits can remain the same with a lower unit volume sale. The same kind of situation has occurred in Europe, with an over-supply of vehicles.
In Europe, the market appears to be flooded with automobiles now. The supply is high. In order to compete in this crowded market, companies will have to reduce their prices. Demand simply does not match the supply, therefore prices must be lowered.
Europe has almost 300 car and engine plants, according to the European Automobile Manufacturers’ Association (known as ACEA). Their collective capacity is thought to be about 27 million vehicles a year. Sales of new cars last year were just under 16 million and are expected to fall to as low as 14.5 million this year, according to Ford.
The capacity was established when demand was high, before the recession. Because car manufacturing is so capital intensive it is harder than other industries to be flexible to economic downturns. Manufacturers are therefore more vulnerable. They will make cars based on information from a year earlier and scale up their factories to do so, when it turns out demand is not as high as they thought it was because people are scaling back their spending on things like cars, they will produce an over-supply. They will then
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Point “a” does not represent an efficient allocation of factor of production. To see this, consider a point like ‘b’ in the same graph shown below. It provides the same level of output of good X as point “a” since we still are on the same X isoquant, but the production of Y has increased since now we are on a higher Y isoquant. Similarly, we could have picked a point on the Y isoquant through point “a” which is tangent to a higher X isoquant.
This means that she has to sacrifice the opportunity of producing 50 pigs if she wants to produce 200 pounds of corn per year. But if she choose to produce pigs, the opportunity cost that she will incur will be 4 pounds of corn (200 pound of corn/50 pigs).
Therefore, eliminating taxes would prevent the government from reaching its desired revenue targets and this would result in a deficit between what the government spends and what it collects. Ans 2) A private good is one that is excludable in nature and is unique for every consumer.
However, when the price of a gallon of paint increased to $3.50, his usage decreased to 20 gallons. The exercise aims to introduce the concept of elasticity by illustrating how the demand for a product will decrease if the price is increased. In the example, one observes that the demand for paint is elastic because it is sensitive to price changes.
There can be two possible explanations of this rise and fall in the prices of the butter. First could be the direct result of the changes in the supply and demand of butter in the market. If supply of butter in the market is decreasing, its prices will start
Similarly if he spends his entire budget on food then he will be able to consume 0 unit of water and 4 unit of food. The table below shows that how the consumer is able to allocate his budget on food and water.
us, as beef price increases and since the customers are price sensitive, the demand will decrease as the consumers will resort to consuming chicken since they lower priced. The consumers will thus reduce consumption of beef and increase consumption of chicken.
The supply of
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