Consumer Tastes

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Economics

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Feb 20, 2024

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Running head: Consumer Tastes 1 Activity 3 – Consumer Tastes Student’s Name: Shriya Agarwal Institutional Affiliation: University of Cumberlands Course: 2023 Summer - Managerial Economics (BADM-535-B03) - Second Bi-term Instructor: Craig Hovey Due Date – 7/23/2023

Consumer Tastes Q1 Using shifts in supply and demand curves, describe a change in the industry in which your firm operates. The change may arise from a change in costs, entry/exit of firms, a change in consumer tastes, a change in the Macroeconomy, a change in interest rates, or a change in exchange rates. Label the axes, and state the geographic, product, and time dimensions of the demand and supply curves you are drawing. Explain what happened to industry price and quantity by making specific references to the demand and supply curves. If more than one change occurred, then decompose the change into smaller pieces so that your explanation has a step-by-step character to it. (Hint and warning: Demand and supply curves are used at the industry level, not at the firm level.) Describe how your company could profitably use the analysis Solution- Supply and Demand Curves The automotive industry is important in promoting the growth of an economy. However, there have been recent concerns about the emission of gases that vehicles in the industry have. Individuals are working towards ensuring green technologies and better environmental conservation methods. Firms in the automotive industry have started focusing on providing fuel- efficient vehicles. The environmental conservation concerns have led to a change in consumer tastes. Consumer tastes affect the demand and supply of products (Amaldoss & He, 2019). Consumers want to have fuel-efficient cars that do not have dangerous emissions to the

Consumer Tastes environment. The change in consumer taste has increased the demand for fuel-efficient cars. Increased demand has caused the demand curve in the industry to shift to the right. The demand for fuel-efficient cars has shifted from D to D1. The quantity of fuel- efficient cars has demanded has increased. Increased demand has led to an increase in prices of fuel-efficient cars as any other type of car using gasoline has decreased prices. The cars in demand have increased prices in the market. The supply of fuel-efficient cars has also changed due to the change in consumer tastes arising from environmental conservation concerns. Consumer tastes cause a change in supply in terms of the prices and quantity in the market in an industry (Amaldoss & He, 2019). The curve below shows the supply movement due to the changing consumer tastes.

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Consumer Tastes The supply curve indicates a supply shift to the left, indicating decreased supply. The supply curve shifts from S to S1 while the quantity decreases from Q to Q1 in the industry. The price of fuel-efficient cars is likely to increase due to the high demand. Manufacturers in the industry are likely to consider the production of fuel-efficient cars due to the high demand and decreased production of other cars. The manufacturers also want to be involved in conserving the environment to build the company’s reputation. The result of the effort is reduced quantity and supply as there is a high demand for fuel-efficient cars, which increases the number of cars sold. The company can analyze the effect of change in consumer taste on supply and demand to make decisions on production and marketing. The results from the analysis can contribute to effective decision-making, which can help to have adequate production of fuel-efficient cars. The management in the company could also use the analysis to adjust the prices of the cars to reflect the consumer taste changes and the rise in production in the industry. Proper pricing and marketing can help to achieve the overall growth and financial performance of the company. The analysis may enable the company to position itself best for success in the changing automotive industry. Reference Amaldoss, W., & He, C. (2019). The charm of behavior-based pricing: When consumers’ taste is diverse, and the consideration set is limited. Journal of Marketing Research, 56 (5), 767– 790. https://doi.org/10.1177/0022243719834945

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