Microeconomics is the branch of economics. Microeconomics
studies market behavior of individuals (consumers) and firms (producers) so
that to understand the decision making process of households and firms. Next,
microeconomics focuses more on the patterns of demand and supply, also the
price determination in markets. (Investopedia,
2013)
Let’s take car as an
example to study about demand and supply. Car has become one of the essential transportation for the people in Malaysia. There are more than three million
cars in Selangor. (Motor Trader Editorial
Team, 2012)
There are many imported
cars in Malaysia. Toyota, Lexus, Subaru, Honda, and Hyundai are some famous
brands of imported cars. In Malaysia, Toyota is considered as the most famous
brand. Many Malaysians prefer Toyota as their first choice.
Demand is defined as a
schedule that shows the amount of a product or service that consumers are
willing to pay at each specific price in a set of prices, in a period of time. (Campbell,
Stanley, 2005a)
Law
of Demand
-
Law of demand is consistence with common
sense.
People do buy more a
product or service at a low price than a high price.
There is always an inverse
relationship between the price and the quantity demanded of a good or service
during some period of time.
Basically, the demand
of a product or service increases when the price falls.
Same, as price rises,
the quantity demanded falls.
The graph shows the
relationship of demand and the price. The demand graph is always down sloping,
which means the price and quantity demanded are inversely related.
Toyota’s production and
sales report
There is an article
informed that there was a flood at Thailand on November 2011 (13takakuwat, 2011). The car factories
had shut down and they could not produce and supply cars. Due to this
situation, many car companies, including Toyota, could not fulfill the demand
of the Malaysia’s market. As the demand of cars exceed the supply of the cars,
the price of Toyota increased. Referring the latest Toyota annual report, the Consolidated
Vehicle Production and Sales statistics show that from 2008 to 2012, Toyota
sold the least cars, about 7,237
thousands cars in year 2010. The price of Toyota cars
increased after the flood occurred. Hence, if the price increases, the demand
will decrease.
Demand will
change based on the peoples, normally demand changed due to the price factor. Price
varied wills influence the demand changes. In simple, the shift of the demand
curve of a product or service, caused by new competition or shifting trends,
which can either lower or raise the price. (Sloman, Wride, Garratt, 2012a)
There is complete shift
of demand curve as a result of change in the factors other than price. A fall
in demand leads to a downward shift of demand curve and a rise in demand cause
the demand curve to shift upward. Some other determinants will also affect demand
change. (Campbell, Stanley, 2005b)
Determinants that affect demand change
-Tastes
A favorable change in
consumers taste for the product will makes the product more desirable, and
consumers will prefer more the product. By means, consumers will demand more
the product at each price. When the demand increases, the demand curve will
shift rightward.
[Examples]
Malaysian prefer Toyota
cars
According to a blog and
an article, many Malaysians prefer to choose Toyota cars because of the brand.
As Toyota has many years of experiences, people do believe that Toyota’s
services and product quality is perfect enough. Besides that, some people state
that Toyota’s more durable and reliable compared to other brands of imported
cars. Next, there are also some people only love the name of Toyota. (Watts,
2012) Basically, Malaysia’s imported cars including Toyota, Honda, Hyundai,
Lexus and others are almost have the same level of quality and their price
range is not that far. From the blog, it seems to prove that people’s
preferences can affect the sales of Toyota, in different reasons. (George,
2005)
A substitute good can
use to replace another good.
[Examples]
As mentioned above,
Toyota has competitors in Malaysia. Take Honda as an example, Honda and Toyota
have been two leading competitors for decades, in Malaysia. According to the
article, it states that Honda and Toyota have price differences. For example, the
base model 2002 Civic DX sedan launched by Honda and it has retail price of
$13,800.
Honda Civic Sedan 2002
At the same time, Toyota also launched the Toyota Corolla CE sedan in
2002, but the price is slightly higher, which is $13,900 (Silbert, 2013).
Toyota Corolla CE sedan 2002
Comparing
two cars, they have same specifications. As the price gap is not that big,
consumers has two choices if their budget is around 14 thousand to buy a car.
For some consumers who prefer the lower price will definitely choose the Honda
Civic DX sedan, it can be a substitute for Toyota Corolla CE sedan. If
consumers tend to prefer more on Honda cars, the demand of Toyota cars will be
affected.
A complementary good is
used together with another good.
[Examples]
The Malaysia online
news stated that the government announced that the price of petrol and diesel
would be increased of 10 sen a liter. (The
Sun, 2010)
As petrol is a compliment good for cars. If
government tends to increase the price of petrol, the demand of the Toyota
petrol cars will decrease. Fortunately, Toyota has figured out a way to prevent
the demand of Toyota cars continue to fall.
In year 2009, Toyota has introduced the new hybrid
car, a gasoline engine run car with the power of electric motor, and it is
suitable for petrol as fuel (Motor Trader,
2009) As Malaysians continue to demand Toyota cars, hybrid car will be under
their consideration. The demand of hybrid car is estimated to increase
significantly in the future.
Supply is a schedule
that shows how many products or services would the producers willing to produce
for a sale at each of a series of possible prices during a specific time. (Jackson,
Mclver, 2005a)
Law
of supply
Unlike law of demand,
there are always a positive relationship that prevails between price and
quantity supplied.
In simple, as price
rises of products or services, the producers are willing to produce more of
them.
As
price falls, the quantity supplied falls.
An increase in supply
is shown as a rightward shift of the supply curve. In simple, the supply
increases with the raise of price. They have positive relationship.
Changes
in Supply
Same as changes in
demand, there are also some determinants will affect supply. Costs are the
major factor underlying supply curves (Jackson, Mclver, 2005b). In simple,
anything that affects costs will shift the supply curve. There are two
determinants will affect Toyota’s supply.
Determinants that affect supply change
-
Resources Price/ Lack of resources
As the supply curve is
based on production costs, the resources price will affect supply. A decrease
in resources price will reduce the cost of production, and increase the supply
of a product or service. Lastly, a firm is unable to produce goods if there is
a lack of resources.
[Examples]
In year 2011, Japan
experienced the largest earthquake. The earthquake is up to 8.9 magnitudes. The
worst is, the earthquake has triggered a 30-foot tsunami (Dedman, 2011). That
year, This Japan's economics moved to a downward trend, and many firms’
business were affected. Lately, the sales of Toyota in North America's sales
had decreased 7.8% because Japan experienced shortage of Toyota cars, they
could not supply cars to fulfill the demand of the market, due to the Japan
Earthquake. As the resources were extremely limited that year and the
individuals still demand more, the scarcity problem occurred. The scarcity of
resources had caused Toyota not able to produce. At last, the supply of Toyota
cars had reduced.
-Technology
Improvements in
technology enable firms to produce more units of output, but with fewer
resources. As the resources are costly, firms will try to use the resources as
lesser as possible in order to save production cost, or improve development
efficiency. (Sloman, Wride, Garratt, 2012b)
[Examples]
Toyota using
technology to enhance supply chain
According to the latest
annual report from Toyota, the company is trying to achieve a target of 30%
improvement in development capacity and lower costs in development. The company
will bring in new technology to improve all the factors that are involved in
development. The development tools including human resources, designs, testing
processes, and machines. These could influence Toyota to make huge improvements
on development efficiency. Most important is, they are able to speed up the
decision making process, which will stable supplies even emergency situations
happen, and strengthen the supply chain.
