POM 4

2

The Concepts of Demand, Supply, and Equilibrium in Understanding the Functioning of the Market.

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Part 1

In economics, the concepts of demand, supply, and equilibrium play a critical role in understanding how markets function. In accordance with the book “Principles of Economics” by Mankiw (2014), which is available in the Walden Online Library, the distinction between a movement along the demand and supply curves and a shift of the demand and supply curves represents a fundamental concept. A movement along the demand or supply curve occurs when there is a change in the price of a good or service, leading to a change in the quantity demanded or supplied, while all other factors that influence demand or supply remain constant. On the other hand, a shift of the demand or supply curve occurs when there is a change in any factor other than price that affects demand or supply. This shift leads to a change in the quantity demanded or supplied at a given price.

Taylor and Weerapana (2017) stipulates that several factors can cause a movement along the demand or supply curve. For example, a change in the price of a related good can cause a movement along the demand curve, where a decrease in the price of a substitute good leads to an increase in the quantity demanded of the original good. A change in the cost of production can cause a movement along the supply curve, where an increase in the cost of production leads to a decrease in the quantity supplied. Conversely, several factors can cause a shift in the demand or supply curve. For instance, a change in consumer preferences or income can lead to a shift in the demand curve, where an increase in consumer income leads to an increase in the quantity demanded at every price level. A change in technology or input prices can cause a shift in the supply curve, where a decrease in input prices leads to an increase in the quantity supplied at every price level.

Equilibrium is the point at which the quantity demanded of a good or service is equal to the quantity supplied, resulting in no excess supply or demand. Equilibrium is found where the demand and supply curves intersect. In this scenario, the market clears, and all goods offered for sale are sold at the prevailing market price. Ultimately, a shift in the demand or supply curve can affect equilibrium in several ways. For example, if there is a decrease in supply due to an increase in production costs, the supply curve shifts to the left. This shift leads to a higher market price and a lower quantity traded, resulting in a new equilibrium point with a higher price and a lower quantity traded. Similarly, an increase in demand due to changes in consumer preferences leads to a shift in the demand curve to the right, resulting in a new equilibrium point with a higher price and a higher quantity traded (Parkin et al., 2014).

Part 2

Industry: Automotive Industry.

Product/Service: Electric Vehicles (EVs).

The demand for electric vehicles has been increasing steadily over the past few years, driven by a growing awareness of the need to reduce greenhouse gas emissions and air pollution, as well as improvements in technology and infrastructure. However, the supply of electric vehicles has been somewhat constrained due to a variety of factors such as limited battery production capacity and the high cost of EVs compared to traditional gasoline-powered vehicles. Ultimately, one factor that has caused the supply curve for electric vehicles to shift is the increasing availability of battery technology and production capacity (Ballinger et al., 2019). As battery technology continues to improve and the cost of production decreases, more manufacturers are entering the EV market and producing electric vehicles at a larger scale. This increased supply is likely to lead to a decrease in the price of electric vehicles, making them more accessible to a larger population.

The factor that has caused the demand curve for electric vehicles to shift is the growing awareness of the need to reduce greenhouse gas emissions and air pollution (Soltani et al., 2017). The public is becoming more conscious of environmental issues, and governments around the world are setting more stringent emissions standards. This has led to an increase in demand for electric vehicles, which produce fewer emissions compared to traditional gasoline-powered vehicles. Additionally, the availability of government incentives and tax credits for purchasing EVs has also contributed to the increase in demand for electric vehicles.

The automotive industry is undergoing a significant shift towards electric vehicles, driven by a combination of factors such as technological advancements, government policies, and environmental awareness. The increasing supply of electric vehicles, driven by improvements in battery technology and production capacity, is likely to lead to a decrease in their price and make them more affordable for consumers. Meanwhile, the growing demand for electric vehicles, driven by a desire to reduce greenhouse gas emissions and air pollution, is likely to further increase as governments continue to implement stricter emissions standards and provide incentives for their purchase. The automotive industry is poised for a major transformation, with electric vehicles expected to play a significant role in shaping the industry’s future (Sperling, 2018). 

Reference

Ballinger, B., Stringer, M., Schmeda-Lopez, D. R., Kefford, B., Parkinson, B., Greig, C., & Smart, S. (2019). The vulnerability of electric vehicle deployment to critical mineral supply.  Applied Energy,  255, 113844.

Mankiw, N. G. (2014). Principles of economics. Cengage Learning.

Parkin, M., Powell, M., & Matthews, K. (2014). Economics. Pearson Education Limited.

Soltani-Sobh, A., Heaslip, K., Stevanovic, A., Bosworth, R., & Radivojevic, D. (2017). Analysis of the electric vehicles adoption over the United States.  Transportation research procedia,  22, 203-212.

Sperling, D. (2018).  Three revolutions: Steering automated, shared, and electric vehicles to a better future. Island Press.

Taylor, J. B., & Weerapana, A. (2017). Principles of macroeconomics. Cengage Learning.