Paper on Elasticity

Topics: Supply and demand, Price elasticity of demand, Elasticity Pages: 2 (621 words) Published: March 31, 2012
Company: Toyota Motor (TM, $76.47)
Industry: Automobiles Manufacturing
Toyota Motor (NYSE: TM) is the world's largest automaker with over 248 billion dollars in revenues for fiscal 2010. Toyota's sales are concentrated in Japan and North America but have seen rapid growth in Asia and South America. Toyota sells its automobiles under three brands namely Toyota, Lexus and Scion. Toyota has dominated market for the past 5 years in the area of hybrid vehicle with its Prius and is ahead in the race for high mpg cars offered by manufacturers. Demand: Demand is increasing as higher than average gas prices are making fuel efficient reliable Toyota cars a more lucrative purchase. Demand curve shift to right as the customers are giving high preference to fuel efficiency and reliability to keep running cost down in the declining economy. Supply: Toyota cars production was adversely affected temporarily due to natural causes such as Japan earthquake and Thailand flood. Toyota has managed to increase its supply to recover production loss and be profitable. Supply curve shifts to right due to Toyota’s strategy to increase production of low price popular models more than higher priced niche market models. Price Elasticity:

Industry Elasticity: On the industry level, price is inelastic in the short-run; there are a number of Japanese automobile makers as well as the big three. A small change in price would not affect the demand for a particular automaker. Tighter government regulations on fuel efficiency and environmental impact as well as consumer’s hunger for better features are keeping fierce competition for automakers. This makes demand elastic in a longer run as automakers search for new ideas to survive their long term existence. Own Price Elasticity of Demand: Toyota’s price is inelastic in the short-run. A small change in price would not affect the demand for Toyota cars as consumers have following for value for price package that Toyota offers. If the price...
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