Chapter 3, Problem 9P

To determine

In recent years, the number of car producers in China has increased rapidly. In fact, China now has more car brands than the U.S. in addition, car sales have climbed every year and automakers have increased their output at even faster rates, causing fierce competition and a decline in prices. At the same time, Chinese consumer’s incomes have risen. Assume that cars are a normal good. Draw a diagram of the supply and demand curves for cars in China to explain what has happened in the Chinese car market.

Concept Introduction:

Normal Goods: Normal goods are those goods which have a direct relationship between the income and quantity demanded. When income increases the quantity demanded also increases and vice versa.

Demand: The demand is defined as the ability to pay for goods and services.

Supply: The supply is the ability of the seller to produce the goods and services and sell it at the prevailing price