Supply and Demand
Carlee Spencer
XECO/212
December 9, 2012
Jonathan Keisler

Supply and Demand
Cars are a good that almost everyone has. I just purchased my new car, an Audi A4. When it comes to any car manufacturing company they try to gauge what the market will do within the year and make enough vehicles to supply to their customers. Many of the manufacturing companies have started making their new models and sending them out to dealerships to be displayed and many models there for purchase. Then there are some companies that will only make enough models to have a few for purchase and the rest can be custom ordered by each customer to their liking which is something consumers see as a benefit and can raise the demand of certain vehicles. This also allows for the manufacturing company to better meet the demand without having an overabundance of supply. When a car manufacturing plant has a lot of cars left but no demand for them they just lost a ton of money. Cars are not cheap to put together hence the price we pay for them. The demand for cars is relative to price as well. The cars that are more affordable are more in demand and the supply of them will be greater as well to keep up with demand. Examples of these vehicles are Honda, Toyota, Chevy, Ford, and Subaru. Once you get into the higher priced vehicles or luxury class, such as Mercedes, BMW, Audi, and Volvo, the demand decreases, because of the price, and in turn so does the supply. In today’s economy another item that drives the demand of a vehicle is its estimated miles per gallon of gas. Gas seems to constantly be on the rise so consumers try to maximize their gas mileage by getting a vehicle that will give them the most for their money. This also includes reliability so not as many repairs and maintenance needs done. The things that influence demand are an affordable price, reliability, low cost upkeep, and customization. The supply of these cars will be estimated by the company depending on what they have to offer to the consumer in terms of the demand, the sales in past years, and the current economy. Supply is directly related to the projected demand and of course the supplies available for building the car.
Substitutes for a car definitely depend on your location. In New York taxis, the subway system, buses, biking, or even walking would be substitutes. In Montana where I am located, in practically the middle of nowhere, and have to drive a half hour in to work each day, I have to have a vehicle or find someone who does that I can catch a ride with all the time. It is not practical to not have a vehicle in areas like this where things are so spread out so there are not any substitutes. When it comes to talking about the vehicles themselves, for my Audi A4 there would be many substitutes, all consisting of the other makes and models that cost less than the Audi. Some of the direct substitutes in the luxury class would be the Mercedes C class, BMW 3 series, and Volvo S series, each depending on the price relative to the Audi.
Compliments of a car would be parts. If parts for that car rise then the demand for owning that car will decrease. In the chance that you get in a wreck most people do not want to pay higher prices than they have to for the parts. A second compliment would be gas, oil, and other fluids for the car. As the price of these increase for a certain vehicle the demand for that vehicle will decrease.
Since cars are sort of a necessity in today’s world a price change in all cars across the board would not change the demand much. People maybe would stick with their old car as long as possible to avoid paying but in the end the necessity would still be present. On the specific product, the Audi A4, a price hike for this model would definitely spark a demand for other vehicles and decrease the demand for it. The demand for the Audi A4 is price elastic. The demand for cars in general is price inelastic.