Economics

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Week 11 Course Paper |

Course Paper Summary |

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Jennifer Bevier |

12/11/2011 |

Macroeconomics Rasmussen College Fall Quarter

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The automotive industry is a major industrial and economic force worldwide. Today the United States has the largest automotive industry in the world. This industry has an immense effect on the economy. It manufactures billions of dollars in global profits and provides jobs for millions of people. Consequently, numerous factors affect the performance of this industry such as supply and demand, unemployment and inflation as well as fiscal and monetary policies. This paper discusses the macroeconomic policies that affect the automotive industry.

Supply and demand is a major factor in the economics of the automobile industry. Without balance between the two the industry will face significant challenges. Factors that affect the supply of the automotive industry are production, gas prices, and government policies and taxes. Some of the aspects of production which influence the supply of cars are costs of raw materials, the labor expenses, as well as machinery and input overheads. Factors such as these sway the supply of a car greatly. If the rate of raw material increases there will be an increase in the cost of production leading to a decline in profit margins. Costs such as labor, machinery and input costs also influence the supply with the increase or decrease in these costs. Furthermore, if there is a change in the government policies regarding the increase in the road tax charged or the tax which is to be paid per unit sold, the supply of a car will fluctuate with the nature of the change. (Bose, Factors Affecting)

Moreover, factors that affect demand in the industry are vehicle prices and financing options. One of the major factors that influence the demand of any product in the market is the price of the product. With an increase in price comes a...