Choose a commodity (a good or a service) that you are familiar with and discuss how...

Choose a commodity (a good or a service) that you are familiar with and discuss how and when demand and supply have changed (shifted) for this commodity. Provide examples of historical or current events where market demand and market supply for that commodity have shifted significantly, and state the factors that you believe have caused the shift in supply and/or in demand.

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Expert Solution

The commodity I am familiar with is automobiles (cars). There are several factors that affect the demand and supply fo automobiles apart from prices. Demand is affected by income. As income declines the purchasing power declines and the demand for automobile falls. Demand can also depend on preferences. If having a car is a good social symbol then the demand for cars will increase. The supply of cars can depend on the cost of production. If there is an increase in wages or an increase in tariffs on imported steel used in car production, the supply of automobiles will fall.

The demand for automobiles fell significantly during the recession of 2008. A lot of people lost employment and purchasing power. Due to reduced incomes, they decreased their spending on durable goods like automobiles and instead saved more. the decision to purchase automobiles was delayed by many. Both supply and demand have fallen during the current Covid-19 pandemic. Since most of the employees can not come to work due to health reasons or government lockdowns, and since there are restrictions on the import of goods, the supply has fallen. Since many firms have become unprofitable and engage in layoffs, people lose employment and purchasing power. Thus, they demand less cars due to reduced income.

Rahul Sunny answered 1 year ago

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