Econ201 term paper – Microeconomics for Business

It’s for my ECON201 class. Here’s the instructions below…

For the term paper, you are required to pick a current economic topic that relates to the material we have covered or will cover in this course. You will research and find an article that covers the topic you have chosen. You can use an article online or offline from any reputable source. You will write up a review of the article and integrate course concepts into your review. Please make sure you both summarize the article and discuss how it relates to the course.

Complete this essay in a Microsoft Word document in APA format. Your work will automatically be submitted to Turnitin for plagiarism review. Please make corrections as required. Please note that a minimum of 700 words for your essay is required.

ANSWER

Econ201 Term Paper- Microeconomics for Business

Supply and Demand

Supply and demand shows the links between the quantity of commodities sold and the quantity of commodities the consumers are ready to purchase at that moment. The interaction between demand and supply determines the price of a commodity. The quantity demanded depends on commodity prices and other factors such as incomes, price of other commodities, seasonal effects and consumer preferences. Relatively, the quantity supplied depends not only on the price of the commodity but other major factors such as production technology, substitute products’ price, production factors and labour costs. This paper will focus on supply and demand, illustrating how they are equated in a free market, especially during the Covid-19 pandemic. The topic of the article to be reviewed is the “Carmakers have been hit by the global chip shortage” (Neal, 2021). The article will explain how the supply and demand curve changes interact to impact the car manufacturing industry.

The article by Neal (2021) clearly explains how the chips shortage has affected car manufacturers’ demand and supply curve. Most U.S automotive companies are encountering challenges linked to supply chain issues. The coronavirus began in China and spread to other parts of the world, resulting in lockdowns. During the pandemic, most of the major automakers in the U.S announced that they would shut down production. The announcements by the U.S automakers that they will suspend the production of cars highlighted how hard it would be to get the global economy and supply chain back in synch. Honda, General Motors, Toyota and Stellantis reported sales decline due to supply chain problems that have held down output and inventories.

Most car manufacturing factories already encountered a shortage of chips, which was the major reason for closing down some of their plants. In 2020, there was a lot of scrambling to prevent chips shortage in most supply chains. Considerably, the supply and demand for chips have been influenced by the fact that silicon chips are the lifeblood in the tech-obsessed world. Demands for semiconductors has increased during the pandemic as people snapped up laptops, games consoles and TVs to help survive through the lockdowns. Relatively, most of the chip manufacturing companies lowered their production due to a low demand that began after automakers decided to close for weeks during the pandemic, thus cutting their demands for computer chips (Voas, Kshetri, DeFranco, 2021).

When the automakers resumed production, the chip makers had a low production capacity to offer for automotive chips. This greatly affected the chip-reliant car industry, whose supply was hit hard. In 2020, there was a decline in sales as the chip shortage left car manufacturers with few vehicles to offer consumers (Neal, 2021). The automakers had tried to use the chips they had in stock to manufacture their most profitable vehicles, such as large sport utility vehicles and pickup trucks. Still, those models were also affected after some months. With the few vehicles rolling of car manufacturing companies, the dealer’s inventories became skimpy.

The pandemic combined the aspects of both demand and supply shock in car manufacturing companies. The supply shock resulted in reduced economic capacity to produce cars. The pandemic has prevented car manufacturing companies from production due to a shortage of chips. On the other hand, the demand shock has resulted from the high consumer’s willingness or ability to purchase products during the period (Baqaee and Farhi, 2020). Therefore, the demand and supply shock in the car manufacturing companies resulted from the effects of changes in the demand and supply. The low production of the car means that there are simply not enough cars to meet the consumer demands.

Considerably, changes in the demand and supply curve affect the sales of commodities. When the supply exceeds the demand, the sales tend to fall. On the other hand, when the demand exceeds the supply, the sales tend to rise. Neal (2021) states that the supply of cars has seen declined sales due to low production despite the high demand. For instance, General Motors sales were low by thirty-three per cent in 2020 compared to the previous year. Honda sales were down by eleven per cent, while Nissan decline was ten per cent, all linked to the increasing squeeze on production.

The demand schedule has also been affected by the changes in the demand and supply. The demand schedule is the table that indicates the quantity demand at different prices. For instance, the demand schedule in most car manufacturing companies has been affected. This is because the demand and supply issues of chips have led to a big dent in the automaker’s sales in the United States. Neal (2021) states that the new cars’ scarcity has influenced the demand and supply curve for new cars.

Conclusion

The movement along the demand curve consequential to a change in the quantity demand is always triggered by a change in supply curve. Correspondingly, the shift of the supply curve consequential to a change in the supplied quantity is triggered by changes in the demand curve. The article shows how the pandemic has led to chip shortages, affecting the demand and supply of cars. Most car manufacturing companies were forced to close in 2020 due to chip shortages, which influenced their supply of vehicles. The shortage of chips has left the dealers with few vehicles to offer to the clients. This has raised the demand curve since most companies were forced to slash their global production. Therefore, the shortage of chips during the pandemic led to demand and supply shocks in the car manufacturing industry, resulting in a big dent in the automaker’s sales.

References

Baqaee, D., & Farhi, E. (2020). Supply and demand in disaggregated Keynesian economies with an application to the covid-19 crisis (No. w27152) National Bureau of Economic Research.

Neal, E. (2021). Chip Shortage Makes Big Dent in Automakers’ U.S. Sales. The NewYorkTimes. Available at: https://www.nytimes.com/2021/10/01/business/auto-sales-gm-honda-toyota.html

Voas, J., Kshetri, N., & DeFranco, J. F. (2021). Scarcity and Global Insecurity: The Semiconductor Shortage. IT Professional, 23(5), 78-82.