It is important to carefully evaluate the idea of whether or not to invest in purchasing a new car. A lot of factors have to be well thought-out before buying a new car. The factors are also not limited to the price and type of the car any willing buyer may be willing to acquire. The state of the economy is, therefore, a game changer on whether or not to invest heavily in buying a new car. In the modern society, getting a car is a wise decision that takes a lot of consideration and budgeting.
Economic Indicators
While having the plans of investing in a new car, the economic indicators that are helpful in the evaluation of the purchase decision are; unemployment rates and interest rates. The economic indicators are significant as they direct consumers on whether to buy a new car or a used one. The economic indicators also show consumers to perfect timing to do the purchase. Consumers get to know whether to buy a car in the present or in the future days.
The automobile business is a cyclical industry in the economy. Changes that occur in the business due to revenues and earnings are more likely to be caused by the state of the economy. The economic condition is controlled by the interest rates that the commercial banks charge on their clients. Apparently, sales in the automobile industry get high when economic activity in a country is stable and residents are convinced about their prospective economic conditions. The environment where people are confident due to the existing interest rates gives room for more people to make car purchases. Unemployment is a also a major factor that determines the rate of car purchase in a country. Most people do not feel motivated to make a car purchase because they are unemployed. In the real sense, such people do not have the means to make a car purchase. People with jobs are also not likely to buy car when they are worried about losing the job (Stock, James, and Watson, 1989, p 389).
How the Economy has affected the Demand and Supply of Vehicles over the Past Two Years
Over the last two years, the demand for cars has gone up since the interest rates have been cut down by commercial banks. The supply of cars has also gone up since the banking sector has opened up financing to the automobile industry, leading to the disbursement of many cars. The industry has, in the past two years, contributed in the growth of the economy due to its resurgence. There has been an escalating stipulation for cars as because of the increase in the number of youth who are getting employed. The favorable interest rates have also motivated most people to purchase cars. On the other side, the industry has contributed heavily in developing the economy as it has managed to make a constant supply of vehicles to consumers. The entire growth has also been due to the intervention of the government during the turmoil of the recession.
The demand for cars has been high over the past two years in the United States. For instance, car sales made in the country have risen to 7, 6 % in 2013 and the trend has been maintained. Initially, high unemployment rates and high interest rates that described the economy contributed to the low demand levels for cars. Favorable interest rates in the United States have made the cost of purchasing a car cheaper, thus, the demand for cars has been at high levels from 2013. The industry has managed to meet the level of demand for new cars but the situation may not be the same in the near future due to the problem of excess demand for the product. The state of the economy allowed companies in the industry to access easily the right amount of capital needed to meet the high levels of demand. Favorable interest rates were motivating factors for companies to loan large sums of money with the hope of paying without incurring losses (Griliches, 1990).
The Impact of the State of the Economy on Car Prices
Favorable interest rates have made the prices of cars to go relatively down as compared to the prices that existed before. In many occasions, consumers purchase high-end products such as cars on credit. High-interest rates in the past made cars more expensive, hence, the tighter credit that was witnessed. Since the automobile industry has been on the high-end in contributing to the development of the economy, car prices have remained relatively constant. My decision to purchase a new car is there, motivated by the existing prices due to the favorable interest rates. My arrangement is to acquire the car on credit terms at the time when the purchase terms are still pocket-friendly.
The Application of Demand and Supply to the Understanding of the Purchase of a Car
According to the law of demand, the higher the price of a good, the less people who are likely to demand for the product, all factors held constant. The law applies to the purchase of cars in the United States as the favorable interest rates have contributed to the lower car prices, hence the high demand. The law of supply states that suppliers supply more at higher prices due to the high revenue they would collect. Practically, the law of demand is the controlling factor in the car purchase that is yet to be made (Shaw & Pease, 2010).
The economy seems to be at equilibrium since the number of cars supplied by companies equals the demand made by consumers. The current economic situation satisfies both firms and consumers, thus, it is the most appropriate time to purchase a car. The equilibrium demand and supply allows suppliers to sell all the products they have and consumers to get all that they need.
The Application of the Concepts of Macroeconomics in Understanding the Factors that Affects Shifts in Supply and Demand on the Price of a Car
Other than price, other factors cause the demand and supply of cars to shift. Macroeconomic aspects are useful in understanding factors that affect the shifts in demand and supply. Price of substitute and complementary goods causes a shift in the demand for cars, leading to either an increase or decrease in purchases. The changes in the prices of such goods are caused by economic indicators such as interest rates and unemployment. Interest rates determine the prices of compliment goods for cars such as fuel. A fall in the prices of compliment goods will, therefore, lead to an increase in demand for cars even as car prices remain constant. Unemployment leads to a negative shift since income levels of individuals’ drops. A rise in income due to employment creates a shift to the right for the demand of cars (Blanchard,Olivier and Quah, 1988).
The shift in supply of cars is affected by unemployment rates as more taxes are levied on vehicles instead. Lower product taxes means less costs involved in supplying cars, hence the supply of cars increases. Higher product taxes, on the other hand, decreases the supply due to more regulations.
References
Blanchard, O. J., & Quah, D. (1988). The dynamic effects of aggregate demand and supply disturbances.
Griliches, Z. (1990). Patent statistics as economic indicators: a survey (No. w3301). National Bureau of Economic Research.
Shaw, D., & Pease, K. (2010). Car security and the decision to recommend purchase. Crime Prevention And Community Safety, 12(2), 91-98. http://dx.doi.org/10.1057/cpcs.2010.3
Stock, J. H., & Watson, M. W. (1989). New indexes of coincident and leading economic indicators. In NBER Macroeconomics Annual 1989, Volume 4 (pp. 351-409). MIT press.
