Question

As an executive in the automotive industry, which two demand determinants (other than product price) do you think are most important in forecasting demand for your products? Justify your choices.

Answer 1

Other than the price of the automotive, the other two significant demand determinants are:

Income of the consumers-it is very important as with the increase in the price level over the years, the real income of the consumers should be increasing in order for their for the automotive to increase.If the inflation is increasing the prices, but the real income of the consumers remains the same over the years so that their purchasing power does not change,then they would be less interested in buying a new car whereas if their disposable income increases, then their demand for automotive would increase as it is a normal good.

Financing- another important determinant is the financing options as a majority of people get finance from the major financing institutions while purchasing a new automotive.The interest rate being offered,the availability of easy finance affects the demand as a consumer would select the brand which offers him easy finance,easy repayment options.The financing makes it affordable for the consumers who are mainly rational to buy a newly launched automotive so its very important that the companies pay more attention to it while offering a new product.