Decrease in Supply and Increase in Price
Article Summary
Klayman, B., & Nellis, S. (2023). Ford’s pain highlights the uneven impact of the two-year auto chip shortage. Reuters. Web.
The possibility of reducing production arises when raw materials are unavailable. According to an article by Klayman & Nellis (2023), car manufacturers have reduced their car production rates due to a global shortage of semiconductor chips that began during the COVID-19 pandemic. Ford Motor Co. states that disappointing results can be attributed to disruptions in the worldwide semiconductor supply chain. Some carmakers are suffering more than others due to such shortages.
Ford estimates that the problem has resulted in a 100,000-vehicle reduction in production over the last three months (Klayman & Nellis, 2023). The issue has persisted for approximately three years, resulting in a low supply of cars, which has led to increased prices. In turn, increased costs reduce the demand from consumers who postpone their desire to own cars. Again, the increased prices will help generate profits for car manufacturers because the available items will be in limited supply, and customers will compete to purchase them.
When there is a reduced supply of chips, car makers will reduce the number of units, while demand remains the same or may increase. The scenario will shift prices higher in the price curve as the carmakers are expected to reduce production or raise consumer prices to compensate for the increased cost of chips. If the shortage persists for extended periods, manufacturers will likely strive to compete for a limited number of chips, which could lead to further increases in production costs.
Illustrative Graph
Graph 1 illustrates this situation, characterized by increased prices resulting from reduced supply. This is because the global chip shortage has led to a decrease in car supply, resulting in a price increase for cars. This price increase may lead to a decrease in car demand. Therefore, a shift in demand may happen, leading to a new equilibrium quantity of cars.
Graph 1 is relevant to the impact of the global semiconductor chip shortage on car production. The shortage of chips can be seen as a determinant of supply that has changed, resulting in a decrease in the number of cars available for purchase. As a result, the supply curve shifts inward, indicating that suppliers can bring fewer products to the market at higher prices for all possible quantities. Despite the higher prices, customers will compete for the reduced supply, which can guarantee purchases without delay, leading to quick profits. This shift increases prices, and consumers are willing to buy a lesser quantity demanded, as the Law of Demand dictates.
Increase in Demand and Increase in Price
Article Summary
Priday, R. (2023). iPad mini 7 just tipped for performance upgrade. Web.
Consumer preferences are considered crucial in changing demand. According to an article by Priday (2023), Apple analyst Ming-Chi Kuo predicted that Apple would release a new Apple Pencil designed explicitly for the third-generation iPad Air. The company will also provide upgrades to the iPad’s features, including larger screens and enhanced capabilities.
The new pencil is expected to have a more affordable price point, but with new features that will make it more appealing to users. This will increase the demand for the new pencil, causing a shift in the demand curve to the right (graph 2). As the demand for the new pencil heightens, the equilibrium price and quantity will also increase. The increase in quantity supplied by the producers results from the shift in the demand curve.
Illustrative Graph
Graph 2 illustrates a shift in demand resulting from a change in consumer preferences, tastes, or other factors that affect consumers’ willingness and ability to purchase a product. A demand shift leads to a product’s change in equilibrium price and quantity. Graph 2 illustrates the link between demand changes and price shifts in a competitive market with alternatives and customer expectations. The demand can change from D1 to D2 if one or more aspects determine that the demand increases or changes favorably.
In this situation, the determinant of demand is consumer preference, which Apple is addressing, indicating that there are expectations that Apple will attract more consumers who desire features such as large screens. As demand increases, the price of the product shifts from P1 to P2, resulting in a positive change. This indicates customers are willing to compensate for the quality features that satisfy their fantasies or preferences. At higher prices, the supplier will be able to bring more quantities and make more profits, as suggested by the changes in the quantity of supply from Q1 to Q2.
The scenario is related to changes in expectations about the future of a product. Due to a positive attitude towards the upgrades and new features, consumers are likely to spend more on the product. Consumers expect the product to be more valuable and desirable when it hits the market, leading to increased demand for the current product. However, the company may raise the price if the consumers show high anticipation. The price may revert to its original value if the consumer realizes that the upgrades or new features do not align with their preferences or expectations.