The decision to purchase a car by an individual a number of macroeconomic variables. These variables play important role in making individuals to either demand more of cars or less of them or also act as supply drivers since producers base their supply and production activities on these factors. Some of the economic factors that affect the aggregate demand of cars include unemployment rates, real GDP, inflation rates, interest rates and housing starts amongst others. This paper shall therefore, focus on unemployment rates and inflation rates and how they have affected the demand of cars over the last two year as well as their effects on the price. Inflation is referred to as the general increase in the levels of prices of different commodities
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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
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