Introduction
The selected concept discussed in this context is demand and supply. Demand and supply are ideally working against each other to achieve equilibrium price-quantity supplied is equal quantity demanded (Carter, 2014). The essay analyzes a case study of the demand and supply of automobiles during the COVID-19 pandemic.
Due to their sizeable economic output, automobile manufacturers suffered from sales losses during the pandemic. Therefore, understanding the demand and supply in the automotive industry during the coronavirus outbreak is necessary to promote industry development in similar circumstances.
Main Body
Automobiles are durable goods used longer and are typically replaced when consumers spend high public. During the pandemic, consumer spending was constrained, forcing many buyers to postpone the potential purchase of new cars. It greatly impacted automobile manufacturers since they faced unpredictable negative demand shocks (Pató et al., 2022). Consequently, the companies could not sell vehicles already built, resulting in a loss in profit that may have financed some of the production cost. While a recession is often characterized by low demands for automobiles, the COVID-19 pandemic was different due to supply chain shortages.
For example, price hikes in raw materials prevented automakers from building enough cars to sustain the remaining market demand amidst the recession. According to Edwin and Cohen (2021), parts shortages in Japan caused a decline in vehicle exports by 46% in 2020 compared to the previous year. Therefore, automobile manufacturers opted to produce fewer vehicles, creating acute short of new cars and high market demand.
Purchasing a new vehicle can only be delayed if the consumer’s current car does not need urgent replacement. Moreover, vehicles are essential for moving goods and people, so they will eventually need to be purchased. A lack of supply can have a profound economic impact on transporting goods and people. The ripple effect of the supply shortage is low sales of new cars and high demand for used vehicles. It means some vehicles become worth more than the new ones, complying with the demand and supply theory.
The demand and supply issue drove used car prices to an all-time high (Pató et al., 2022). If customers get to wait for potentially longer to get a new car, they become willing to pay more for the slightly used versions readily available in the market. Buying a used car instead of waiting longer for a brand-new one reflects the decision-making theory.
Owners of used cars in demand became unwilling to cash in unless they had a replacement, which is limited in supply. People with in-demand used vehicles they do not need to replace made up some ground to sell (Pató et al., 2022). The unusual demand and pricing for used cars shake up the automobile industry, with dealers adjusting the financing options to attract buyers and bridge the supply shortages (Ewing & Cohen, 2021). However, the demand and supply reached an equilibrium once the effects of the COVID-19 pandemic subsided, resuming normalcy in the pricing of used and new vehicles.
Conclusion
In conclusion, demand and supply is an interesting economic concept that helps players in the market determine prices and make crucial decisions. During the COVID-19 pandemic, the automobile industry experienced shortages and price hikes for parts, halting new vehicle production (Pató et al., 2022). The ripple effect resulted in a low supply of new cars and high demand as consumers wanted to replace them. The uncertainty in supply and demand made consumers opt for used vehicles, which equally increased prices due to high demand. Overall, the coronavirus pandemic’s influence on the automobile industry provides a practice case study of market forces of demand and supply.
References
Carter, A. (2014). Supply and demand equations introduction. YouTube. Web.
Ewing, J., & Cohen, P. (2021). How car shortages are putting the world’s economy at risk. The New York Times. Web.
Pató, B. Sz. G., Herczeg, M., & Csiszárik-Kocsir, Á. (2022). The COVID-19 impact on supply chains, focusing on the automotive segment during the second and third wave of the pandemic. Risks, 10(10), 189. Web.