Supply and Demand in the U.S. Car Market. (Make sure to include a graph showing
ID: 1218158 • Letter: S
Question
Supply and Demand in the U.S. Car Market. (Make sure to include a graph showing the initial equilibrium and the new equilibrium with the corresponding price and quantity and an explanation to support your answer.
D. As the price of gas increases, what happens to the price and quantity of big American SUVs?
Supply and Demand in the U.S. Car Market. (Make sure to include a graph showing the initial equilibrium and the new equilibrium with the corresponding price and quantity and an explanation to support your answer.
D. As the price of gas increases, what happens to the price and quantity of big American SUVs?
Supply and Demand in the U.S. Car Market. (Make sure to include a graph showing the initial equilibrium and the new equilibrium with the corresponding price and quantity and an explanation to support your answer.
D. As the price of gas increases, what happens to the price and quantity of big American SUVs?
D. As the price of gas increases, what happens to the price and quantity of big American SUVs?
Explanation / Answer
Supply and demand. Supply and demand. Roll the phrase around in your mouth, savour it like a good wine. Supply and demand are the most-used words in economics. And for good reason. They provide a good off-the-cuff answer for any economic question. Try it.
Why are bacon and oranges so expensive this winter? Supply and demand.
Why are interest rates falling? Supply and demand.
Why can’t I find decent wool socks anymore? Supply and demand.
The importance of the interplay of supply and demand makes it only natural that, early in any economics course, you must learn about supply and demand. Let’s start with demand.
People want lots of things; they “demand” much less than they want because demand means a willingness and capacity to pay. Unless you are willing and able to pay for it, you may want it, but you don’t demand it. For example, we want to own fancy cars. But, we must admit, we’re not willing to do what’s necessary to ownone. If we really wanted one, we’d mortgage everything we own, increase our income by doubling the number of hours we work, not buy anything else, and get that car. But we don’t do any of those things, so at the going price, $360,000, we do not demand a Maserati. Sure, we’d buy one if it cost $10,000, but from our actions it’s clear that, at $360,000, we don’t demand it. This points to an important aspect of demand: The quantity you demand at a low price differs from the quantity you demand at a high price. Specifically, the quantity you demand varies inversely— in the opposite direction—with price. Prices are the tool by which the market coordinates individuals’ desires and limits how much people are willing to buy—what quantity they demand. When goods become scarce, the market reduces the quantity of those scarce goods people demand; as their prices go up, people buy fewer goods. As goods become abundant, their prices go down, and people want more of them. The invisible hand—the price mechanism— sees to it that what quantity people demand (do what’s necessary to get) matches what’s available. In doing so, the invisible hand coordinates individuals’ demands.
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