Question

Critically evaluate each of the following events using your understanding of the concepts and applications of the demand and supply curves for Automobiles: The ABC News Corporations broadcasts a Breaking-News coverage that the U.S. Government has filed lawsuits against the German Automobile Manufacturer Volkswagen, for its involvement and cover-ups in a “Diesel-Gate Affair” following investigations into the company’s manufacturing practices., The household income level of consumers in the United States drop., The price of cars in the United States rises., The price of cars in the United States falls., Consumers in the United States expect the price of Automobiles to decrease in the future.

Answer 1

Effect on demand and supply:

1. The ABC News Corporations broadcasts a Breaking-News coverage that the U.S. Government has filed lawsuits against the German Automobile Manufacturer Volkswagen, for its involvement and cover-ups in a “Diesel-Gate Affair” following investigations into the company’s manufacturing practices-

Demand will fall because the customer will judge the company on the basis of the lawsuit. This affects the market image of the company abruptly. Due to this, the supply will also fall.

2. The household income level of consumers in the United States drop-

The demand will fall because the customers will have less to spend and they’ll not prefer buying an automobile over the basic consumption goods.

3. The price of cars in the United States rises-

If price of car rises, then the demand will fall according to the law of demand and supply will rise according to the law of supply.

4. The price of cars in the United States falls-

Demand will rise according to the law of demand and supply will fall according to the law of supply.

5. Consumers in the United States expect the price of Automobiles to decrease in the future-

Current demand will fall because they expect the cars to be cheaper in future, so they’ll have benefit to buy it in future. On the other hand, current supply will increase because the suppliers will have disadvantage and less profit to sell the car in future when the prices are expected to fall.