The prices rise due to demand cost push inflation whereby the cost of producing the cars rise and they have to be reflected in the aggregate price of the cars. The rise in prices will make any consumer to demand less of the product. Therefore, this will make us make a decision of not buying the car. It would be beneficial to purchase the cars when the inflation rates are lower and therefore prices would have gone down. The cost of importing the car from another country also contributes to the decision of not purchasing the car due to increased exchange rates that has to be …show more content…
Firstly, increasing inflation rate causes the cost of production to increase which in turn lowers the profitability levels, (Arnold, 2014).Due to this, the producers produce less of cars and supply them at high prices. This in turn make consumers to shy away from purchasing the products due to the increased price levels. When prices of any commodity increase, the demand will automatically fall. Most of the cars will also not be demanded due to increased unemployment rates in the current situations but in the long-run, it can lead to increased demand. Therefore, it is important to take into account the macroeconomic factors when understanding supply and demand as seen in the above