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Econ

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Q: how supply, demand, and prices affect the auto industry. includes: supply and demand, public spending and the outcome.

Answer 1

Let us first understand that automobiles are not dire necessities like medicines , food , clothing etc . So the price elasticity of demand will not be highly inelastic . But we cannot say for certain that price elasticity will be highly elastic for all variety of automobiles because people need it for transportation , so for cheaper versions the elasticity is not highly elastic . We can conclude that demand is moderately elastic for automobile industry as a whole .

Now we come to supply , in short run it is quite inelastic as new automobiles require time and better technology to be produced faster . In long run supply is elastic .

The price of automobiles in short run mainly depends on consumer income , taste and preference and demand . Since supply is quite inelastic , the force of demand determines price . Automobile industry is an oligopoly , there are few brands and each having quite a market share . So price of automobiles is not competitive .