Microeconomics Assignment Example | Topics and Well Written Essays - 500 words - 1

Microeconomics - Assignment Example in time with the reduction of trade barriers in the American mart during the 1980s, the luxury automobile market saw increase competition from European and Japanese automobile makers. In terms of a supply and engage analysis, it is belike that there would be increased variety in the market of luxury automobiles and an overall increase in the supply of vehicles. It stands to reason that there mustiness be a reduction the in price of American luxury automobiles to help increase quantity demanded to meet the new market equilibrium or improvements must be made to reduce the costs of manufacturing vehicles so that company profits can remain the equivalent with a lower unit volume sale. The same kind of situation has occurred in Europe, with an over-supply of vehicles.In Europe, the market appears to be flooded with automobiles now. The supply is high. In order to compete in this crowded market, companies will need to reduce their prices. Demand sim ply does not match the supply, therefore prices must be lowered.Europe has virtually 300 car and engine plants, according to the European Automobile Manufacturers Association (known as ACEA). Their collective aptitude is thought to be about 27 million vehicles a form. Sales of new cars last year were just under 16 million and are expected to fall to as low as 14.5 million this year, according to Ford.The capacity was established when demand was high, before the recession. Because car manufacturing is so capital intensifier it is harder than other industries to be flexible to economic downturns. Manufacturers are therefore more vulnerable. They will make cars found on information from a year earlier and scale up their factories to do so, when it turns out demand is not as high as they thought it was because people are scaling back their pass on things like cars, they will produce an over-supply. They will then