Answer to Question #249358 in Economics for Bro123

Question

Entry Sports Utility Vehicles (SUVs) are quickly gaining popularity among Indonesian vehicle buyers, with owners spending an median of 21 months of their household income to purchase a vehicle in this highly aspirational segment, compared with 18 months for the rest of the market, according to the J.D. Power 2016 Indonesia Sales Satisfaction Index (SSI).

As a market analyst for GM, you are to advise the management on the following scenarios, ceteris paribus :

Scenario 1: The selling price of an SUV rises.

Scenario 2: There is a massive discount on the price of a van.

Scenario 3: Consumers expect the price of an SUV will fall next year.

Scenario 4: A breakthrough automation technology help to lower the cost of producing SUVs

In your explanation, you are to cover the following:

How does each influence affect the quantity supplied or the supply of SUVs.

Draw the effects of each event by either a movement along the supply curve or a shift in the supply curve.

Answer 1

Scenario 1:

Higher prices will lead to lower consumption.

Scenario 2:

Reducing the price will lead to an increase in consumption.

Scenario 3:

Consumers will have less buy expecting a price drop. Sellers will be forced to cut prices and supplies.

Scenario 4:

Lower costs lead to lower prices and higher supplies.