Demand and supply of Cars in Australia and factors other than price which affect demand and supply
Supply and demand is an economic model of price determination in a market. When the demand for a product rises, the price rises too. The manufacturers respond to the increase in price by producing a higher supply of that good which increases the competition and the price is driven down. Demand and supply plays a big role in the automotive industry and especially the cars (Automotive Industry in Australia: Market Research Report, 2015). The companies offer attractive incentives to the buyers so that they buy more cars and they do this without sacrificing any profitability. For example, suppose the average price of any new model of the car reaches 30,000 dollars, to make money companies become stingy with discounts and not enough of the most popular vehicles available in the market.
Prices have an important role to play in demand and supply. The interaction of buyers and sellers determines the price mechanism in a market. In the market of cars, consumer id the king, he decides that what type of cars will be produced, in what quantity because ultimately they are the ones who purchase it and they are the end-users. The dollar votes are cast by the consumers when they buy the cars by signalling their tastes and preferences to the manufacturers. The response is given by the producers to the signalled level of demand. For example, the prices of petrol rises, the consumers start purchasing small cars which give a signal to the producers and they increase the production of small cars as compared to big cars that use more petrol. So prices of cars are determined by the interaction of demand and supply. The major factor affecting demand and supply of cars is the price. As per the law of demand ‘an increase in price the demand of the commodity decreases and vice versa'. So when the prices of cars increase, the demand comes down and the opposite happens when the price of the car reduces. In the case of supply, with the increase in prices, the manufacturers of cars or the suppliers increase the supply as they want to sell more at increased prices to earn higher profits (Dini, 2013). The market structure of this industry is oligopoly so when one company raise its price, the sales of other cars is impacted as the price cars in the same segment are inter-related.
Other than prices, there are various another face if tors that affect the demand and supply of cars in Australia (Dini, 2013). The car industry has observed that financing options and loans are a big driving factor in deciding the purchase of a car. This, in turn, is affected by the level of income of people which impacts the affordability of cars and the ability of consumers to repay the loans along with the interest. When the rate of interest on loans falls, the demand for cars increases as it becomes cheaper for the people to take loans. Then advertising and marketing of cars also impact the decisions of buyers. When the companies use aggressive marketing techniques like associating film stars, celebrities, etc. to attract the buyers for its cars, the demand rises. When the income level of consumer rises, the demand for cars also rises and the opposite happens when the income falls as the level of income affects the affordability of buyers. Income impacts the purchase of lower and upper segment cars too. The buyers who have more income, they purchase the upper segment cars more than the lower segment cars. Then the overall economic environment also affects the purchase decisions of consumers. When the per capita income grows, the aspirations of buyers rise and the changes in the lifestyle of people make them buy more cars than two-wheelers. The demand for cars is also impacted when a new model is introduced in the market (Dini, 2013). With the new launch, more people gets attracted towards it. Demand for the car is affected by substitute goods and complementary goods too. When prices of substitute cars increase, the demand for the particular car increase but when the price of complementary good rises like the price of petrol rises, the demand for car falls. The supply is affected by factors other than prices. The manufacturers of cars who have a presence across the various segments of products ensure higher volume of demand and they supply more. The competition in this segment is intense and existing players are required to initiate steps so that the cost of production can be reduced. This makes the companies produce more and supply more. Then when the network of dealers of cars is wide and is spread over the geographical area, then the company has more reach to customers and they can supply more to them. Technology also impacts the supply of cars (Ili, Albers and Miller, 2010). With new technology, the companies are able to produce a higher volume of cars like the new technology upgrades the processes and more outputs can be produced. Factors of production affect the supply of cars too. When the cost of factors of production increases, the profit margins of companies reduces and hence, they supply less.
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Ili, S., Albers, A. and Miller, S. (2010). Open innovation in the automotive industry. R&D Management, 40(3), pp.246-255.