DEMAND AND SUPPLY OF CARS AND FACTORS THAT AFFECT THE DEMAND AND SUPPLY

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DEMAND AND SUPPLY OF CARS AND FACTORS THAT AFFECT THE DEMAND AND SUPPLY

Essay on: Demand and supply of Cars and factors that affect the demand and supply sides of the market in Australia

Introduction

The automobile industry comprises of many vehicles like cars, buses, scooters etc. Cars are an important part of this industry which is huge and it is spread worldwide. There are a number of smaller industries under this and along with the automobile industry;their performance has also been viable for many years. For past seven to eight years, the sale of the cars in Australia has been increasing and it has contributed to the growth and success of many manufacturers, dealers etc. of the cars. When the consumers purchase the cars, they not only contribute to the pockets of the car makers, but the demand of the service providers also raise. Whenever the number of cars running on the streets of Australia rises, the demand for the service providers of the cars also go up. Also, this is one of the industries in Australia which has contributed huge amounts to the GDP of the nation(Automotive Industry in Australia: Market Research Report, 2015). Hence, it can be said that the study of these movements is an important consideration for the consumers, suppliers of cars and the economists as well. The countries are directly impacted by these changes and movements and Australia is one of them. 
The demand and supply of cars in Australia

The price of cars in the Australian market is determined by its demand and supply. The manufacturers increase the prices of cars in Australia whenever the consumers increase their demand. But the market is competitive. So, when the demand of cars rises, the car manufacturers start producing more of that product so that they can supply it at the increased prices. But, due to this increased competition, the price is driven down. So, this is how the supply and demand of cars functions and affects the prices charged by the car manufacturersand vice-versa. Thus, the role of demand and supply is big in this industry(Automotive Industry in Australia: Market Research Report, 2015). The manufacturers of the cars adopt different techniques to attract the car buyers like they offer them different things, for example, some liters of petrol which is given free of cost, the new cars are serviced for free etc. But, this is not done at the cost of their own profitability, instead they estimate in advance that if they will give more offers, the sale will rise and ultimately, they will earn more. In other words, more cars are demanded by the Australians when the car manufacturers reduce the prices, this concept is popularly known as the ‘law of demand’ (Francis, 2014).In the same way, when the car prices go up, the car suppliers increase their supply in the Australian market (Francis, 2014).

Factors that affect the demand and supply sides of the car market in Australia

1. Prices of product: the factor that has maximum impact on these concepts is ‘price’ which is set when the consumers demand and suppliers supply interacts with each other in the market.But when there is fluctuation in these prices, the demand is affected directly. When the price of the far in the market of Australia increase, the consumers start demanding less and when the price is reduced, the consumers starts demanding more of it(Dini, 2013). Similarly, the supply of cars in the Australian market is affected due to the price fluctuations. When the prices increase, the manufacturers and dealers of the car start supply more cars in the market of Australia and when the prices fall, they reduce their supplies.

2. Prices of complementary products and substitute products: The products that complement the cars in Australia are petrol, gas, car accessories, tyres etc. The products that substitutes the cars in Australia are new model of cars, public transport fare etc. So, when the prices of the products that complements the cars like price of petrol falls, people start demanding more cars as they are able to save their cost of fuel but and when the prices of substitutes rise like the new model is introduced in the market but it is very expensive and it has led to fall in the price of an existing model, then the consumers start demanding more of the old model. Accordingly, the supply also changes(Ili, Albers and Miller, 2010).

3. Financing options and Rate of interest: When the consumers buy the cars, they look for the financing options that are available. If they get loans easily and the insurance companies come up with new attractive schemes related to insurance and buying of new cars, then the consumers increase their demand and they start buying more cars in Australia. Similarly, when the manufacturers have to make the cars, they need investment. If they get it easily and in appropriate amount, they start to produce and supply more cars to the customers(Dini, 2013). Also, when the rate of interest on the loans and the investment falls, then both consumers and the suppliers start demanding more funds and they demand and supply more.

4. Income of consumers and suppliers:This factor has a direct impact on the demand and supply as when the consumers start earning more, they tend to increase their standard of living and they buy more items of their comfort. Car is one of the comfort as well as luxurious item. So, with increased income, the demand rises(Dini, 2013). Similarly, when the manufacturers earn more profits, they retain more and re-invest it in the business. This makes them produce more and sell more cars in Australia.

5. Other factors: Factors like Advertising and marketing, Technology, network of dealers etc. also determine the demand and supply. For example, when the marketers use aggressive techniques for marketing the new car models, they demand rises. With up gradation in technology, the manufacturers are able to produce more at fewer costs and hence they supply more(Ili, Albers and Miller, 2010). When the network ofdealers is vast, they can interactwith the consumers more and hence influence their demand.

Conclusion

It can be concluded from the above essay that the scenario of the car market of Australia is very transparent. When the consumers demand and the manufacturers’ supplies of the cars interact with each other in the market, the prices of the cars gets determined. There are many factors that that affect the demand and supply sides of the car market in Australia like prices, advertising, income etc. With these factors, the purchases and the manufacturing is decided by the consumers and sellers in the market.