Supply and Demand

Topics: Supply and demand, Consumer theory, Elasticity Pages: 7 (1649 words) Published: April 3, 2013
Toyota Motor Company is one of the largest Japanese automotive manufacturers of the world. Due to the earthquake and tsunami in 2011 Japanese economy is facing recession. This report discusses an impact of this natural disaster to the Toyota company. Also, the paper explains non-price determinants of demand and supply and price elasticity of demand for Toyota vehicles. Moreover, economic models are used for making the report clearer and more understandable.

Section A. Description of the good (non-price determinants of demand and supply)

1. Determining the type of good is important in order to know the demand for good is elastic or inelastic. There are three types of goods in market: inferior, normal, and luxurious. Toyota vehicles are considered as number one car manufacturing company. The vehicles of Toyota are known for high quality and good demand. However, Japanese economy now facing recession. Consequently, it can be said that these cars are luxurious. According to D. Begg ‘recession is a period of general economic decline and it is typically accompanied by an increase in unemployment and other negative factors’. These negative factors will affect demand of Toyota vehicles negatively as people will have less money as a cause of inflation, unemployment and overall economic decline. The figure 1.1 below shows change in demand. ‘It is assumed that none of the determinants of demand, other than price, changes’( Sloman, 2003) In case of Toyota one of the determinants of demand people’s income cuase of recession falls, the curve is shifted to the left. That means that at each price less will be demanded then before.


2. Due to earthquake and tsunami in 2011 in Japan the production of cars has been stopped as factories had been damaged and cars for export also had been damaged as a result earthquake.

Electricity shortage after nuclear disaster also caused shortage in output. ‘The company has said that the disaster have caused production loss of 260,000 cars.’(G. Ilie, 2011) Tsunami and earthquake destroyed 10 factories of Toyota. This causes left side shift in supply demand decreasing supply at the same price (Figure 1,2)


3. The impact of rose world oil prices on demand for Toyota cars will affect negatively. Oil and cars are complementary goods as from oil petrol is produced. ‘The higher the price of complementary goods , the fewer of them will be bought and hence less will be demand for this good’( J. Sloman 2003). Therefore, if the price for oil goes up, the demand for Toyota cars will fall. This is shown in Figure 1.3. The demand curve shifts to the left from D to D’, however, price is the same.

4. Technology is one of the factors influencing supply. An innovative production technic which reduces cost will affect to the supply of Toyota positively. The technology can reduce costs. Technological advances can increase production efficiency and enables Toyota company to produce more with input ‘Better technology shifts the supply curve to the right’(Sloman, 2003) In Figure 1.4 shift of the supply curve to the right is shown. Right shifted supple curve means increase in supply from S to S’ at the same price affected by influence of technology.


5. Public transports are transports which are widely used by many people. We can determine public transportation as a substitute good for Toyota cars. The reason of the new environment protecting policy in abolishing taxation on public transports can be to switch people from using cars to using public transports as buses, trains etc. As public transports become very cheap people may prefer to get their place by bus or train. However, Toyota has been also named as the world’s greenest brand and being luxury good people using cars will not switch on public transports . The...

Bibliography: A. Alain. Economics AS Level. Ormskirk, Lancs: The Alden Press, 2000
Begg D., Fischer S., Dornbusch R
Christopher Johnson, (2011), Japan’s long road to economic recovery, The
Globe and Mail
Sloman J
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